Quantifying the Economic Impact of Risk: The R-Index Approach

This study introduces the R-index as a novel framework for quantifying the economic impact of risk through realized deviations from expected performance. In contrast to traditional risk measures that rely on probabilistic or volatility-based approaches, the proposed index captures risk as an outcome-based phenomenon directly linked to firm-level performance. The R-index is constructed as a normalized measure of deviation between actual and expected values and is further extended to a multidimensional setting, allowing for aggregation across different performance indicators. The empirical analysis is conducted using longitudinal financial data from three firms operating in distinct sectors of the Montenegrin economy—telecommunications, retail, and tourism—over the period 2015–2024. The results reveal substantial heterogeneity in the realization of risk across firms, even under identical macroeconomic conditions. While some firms exhibit stable performance and limited deviations, others demonstrate pronounced volatility and sensitivity to external shocks, particularly during the COVID-19 period. These findings suggest that risk is not uniformly transmitted but is instead shaped by firm-specific characteristics, including operational structure and adaptive capacity. The study contributes to the literature by redefining risk as a realized economic phenomenon and by proposing a scalable and interpretable metric that bridges risk measurement and performance evaluation. The R-index offers practical relevance for managerial decision-making and provides a foundation for future research on the relationship between risk and firm value.