What does medium on a heat map really mean??

Making informed decisions, whether it's for purchasing weekly groceries, planning holiday activities, or determining where your business should invest to better meet its goals, is crucial. Having data that allows you to weigh these decisions against your available resources is essential.

Consider planning your weekly shopping with a budget of $300. You request a friend to check prices online for your usual items, knowing that sometimes your preferred brand may be out of stock.

You then ask them to assess the likelihood that the cost of your regular items will exceed your budget. Shortly after, they present you with the following results.  

It's not particularly helpful when trying to determine which store option will be the most economical.

So, why do we persist in the same approach when making business decisions about allocating financial resources to manage risks?

Wouldn't it be more beneficial for a business leader to understand the potential cost of risks should they materialise, and where they should apply their money to mitigate risks to have the greatest reduction in their overall risk exposure?

Simply by examining the graph, it's evident that shopping at Supermarket 1 offers greater assurance of staying within your budget.

Shopping at supermarket 1, there's approximately a 50% chance that it will cost an extra $72 or more. Conversely, the likelihood of the other supermarket costing $72 or more is nearly 100%.

While this is a straightforward example, such a quantitative method can be readily adapted for any risk-based decision a business may need to make.

Assessing risk in this manner is straightforward; one doesn't require a doctorate in statistics.

Should you wish to delve deeper into this topic or seek some advice, please feel free to reach out.

Contact me David@fox-risk.com