How is risk commonly measured?

Risk is commonly measured in terms of impact and likelihood because this approach provides a comprehensive understanding of potential risks associated with an entity's activities. By assessing the likelihood, or probability, of a risk occurring, alongside its potential impact on the organization, auditors can prioritize risks effectively. This method enables organizations to allocate resources appropriately, ensuring that those risks with the highest probability of occurrence and the greatest impact are addressed first.

This dual measurement framework allows for a structured assessment process, facilitating informed decision-making and risk management strategies. It provides a clear picture of where vulnerabilities lie and helps in developing strategies to mitigate or manage those risks effectively, thereby enhancing overall organizational resilience.

Other options may contribute to regular evaluation and decision-making processes but do not encapsulate the holistic approach of risk assessment that combines both impact and likelihood. Measuring risk by revenue and expenses largely focuses on financial metrics without considering the broader spectrum of potential adverse effects. Market share offers a view of competitive positioning but does not directly indicate the existence or severity of risks. Stakeholder feedback, while valuable for gauging perceptions and sentiments, does not inherently measure risks in a structured manner.