Heat maps as a way to portray risks of litigation

Let’s start with how to create a heat map. Take all the litigation pending against your company and assign each lawsuit a percentage from 1-100 on the likelihood that you will pay some non-trivial amount in settlement or judgment. Then use the same scale of 1-100 to estimate the significance (amount) of that payment. With those two coordinates for each case you can plot them on a scattergram and create a heat map, according to a short item in the Harv. Bus. Rev., Vol. 87, Oct. 2009 at 76.

Put a mark for each case on a chart where the vertical axis shows a case’s significance and the horizontal axis its likelihood. Cases in the lower left — the green portion of the heat map — are some combination of relatively unlikely to result in a payout and even if you do it won’t be all that much. In the yellow zone, a stripe from the upper left corner to the lower right, are the cases of some financial risk and some chance of turning against you. The upper right triangle is red hot, where cases have significant financial implications and a relatively high probability of a bad outcome.

The heat map adds a quickly understood color coding to the more familiar scattergram.