To measure risk we have to use probability

To manage risk, we have to be able to measure it, and to measure risk we have to use probability.  Probability is the quantitative language of risk and uncertainty.

The probability of an outcome is a number expressing the likelihood of it actually happening.  It can be a number between 0 and 1, where 0 indicates an impossible outcome and 1 a certain one, or it can be expressed as a percentage (a number between 0 and 100).

In some situations, probability is objective and factual.  For example, the probability of calling the toss of a coin correctly is 0.5 or 50%.  However, tossing a coin is a very simple event.  It is easy to use past experience and real-world knowledge to assess the probability of a 'heads' or 'tails' outcome. 

As situations become more complex, it becomes progressively more difficult to be objective about probabilities; they become more subjective.  Business situations are extremely complex, and therefore the probabilities involved are highly subjective. 

Because the decisions we make in business are so important, it is vital to try and pin down the probabilities involved, even though it may be impossible to achieve complete objectivity.  The more precision we can bring to the situation, the firmer the foundation on which we make a decision.  To move towards precision, we need to look at subjective probabilities.