In today’s corporate world, the risk assessment matrix is unavoidable. Companies face operational risk every day while managing sales, communication, partners, competitors, etc. Whatever sector your company fits in, the most important question that you should ask yourself is: ‘What could possibly go wrong?’
Any company’s operation is fated to have mistakes and risks wandering around departments. Teams are regularly impacted by risks. It is crucial to obtain knowledge and tools to evaluate and control each risk scenario. That being said, in this article we’ll reveal 5 secrets of the risk assessment matrix. But first, let’s understand how to identify the elements of risk assessment..
In this article you’ll learn about:
- What is a risk assessment?
- Risk assessment process
- The definition of Risk Assessment Matrix
- How to use the Matrix
- Risk Assessment Matrix Examples
- The 5 Risk Assessment Matrix Secrets
Risk assessment can be described as the overall process or method used to identify and analyze events that could negatively impact people, assets, environment, processes, procedures and more. These activities has the intent to thoroughly look at specific scenarios and situations which could be likely to result in risk or harm. This process may be conducted using a variety of approaches depending on the risks and compliance applied to a given industry or business.
Companies must show which (and how) risk programs prevent, anticipate and control particular risks. These controls must measure and encompass every issue to prevent loss, injuries or illnesses. And finally, risk assessment programs must also meet legal requirements when applicable.
LEARN MORE Selecting the Appropriate Risk Assessment Techniques 10 Easy Steps to Implement Enterprise Risk Management How to improve governance, risk and compliance management
Organizations are seeking optimization in each risk assessment process relevant to their goals. To accomplish this, corporations must plan risk assessment programs sustainable and easy to understand. The complexity, size and coverage of the risk must correctly encompass the enterprise’s goal.
The goal of this process is to map how big risks are, creating activities (digital or human) focused on measuring, prioritizing and alerting situations using controls that notify issues when threats and opportunities arise.
The risk assessment matrix is an analysis model used to map the levels of risks in a certain department, process, procedure, etc. It categorizes probabilities against a set of specific consequences, whether they be penalties or improvements. This way, professionals can use the matrix to gain a broader vision of risks in their decisions.
The risk assessment matrix is used to basically analyze two variables: impact and the probability of a specific event occurring. These variables are meant to evaluate the impact of risks in comparison to consequences and their chance of happening. The focus of the matrix is to position specific issues in the risk assessment matrix according to their probability rating.
- Insignificant: issues with no real threat or impact to the organization or process.
- Minor: risks that create minor atypical situations, but that won’t impact or block the flow of an organizational system.
- Moderate: issues that could create negative consequences, designing threats and problems to the organization’s people and activities.
- Critical: risks that build scenarios with one or multiple negative consequences on projects, departments, areas, and more, and which can also create dangerous situations for those related to the process.
- Catastrophic: issues that create extremely serious impacts to a whole system, causing the entire operation to fail and severely impacting individuals close to the event.
- Low: extremely rare and can be ignored as a threat to a broad organizational system.
- Medium: plausible but uncommon situations that can develop further risks to certain operations or strategies.
- High: common risk scenarios that must be resolved immediately to avoid hazards in the system’s flow.
- Extreme: serious issues that are very likely to occur and can have a major impact on the whole organization.
All managers must go through the process of building and analyzing the risk assessment matrix. These activities allow the organization to anticipate and control risky scenarios. So, let’s dig into the SoftExpert Suite of software and explore some examples of the risk assessment matrix:
Let’s say your company is trying to determine whether your investments need additional controls to prevent waste, fraud, losses and bribery during financial operations. In this scenario, the objective of the risk assessment matrix is to provide an alert about situations that could cause the company to lose money or even violate regulations.
In the example below, food producers can use the matrix to define and prioritize processes, activities and tasks that are related to the risks in a production chain.
This example represents some of the communication failures and problems caused by software or hardware. The team identifies every possible issue impacting the communication process and builds a risk assessment matrix. This allows tasks to be prioritized and assigned to employees who verify them and make sure that everything is running smoothly.
Unlike other methods, the risk assessment approach evaluates complex issues and synthesizes them into simple frameworks. Yet this alone isn’t enough to assure your organization makes good decisions. Managers need to understand every process and optimize multiple variables. With that in mind, we are sharing 5 secrets that go beyond the matrix and will help you with risks assessment.
1 Connect the experts
Risks are usually mapped into a risk assessment matrix through employee interviews. This shows data and perspectives related to risks in a simple way. However, the idea here is to provide an enhanced view of the risks being confronted rather than providing market know-how. Connecting experienced market professionals with your team through meetings, interviews or workshops to can allow you to gain precious insights into your organization.
The problem is that teams tend to be isolated to their departments when working. Bringing external insights into the company spreads tactical knowledge and joins strategies together.
2 Surveys are not flawless
The best use of surveys to build a risk matrix is when companies have a complex and broad operation or where the culture is not very communicative and open to discussions. Unfortunately, survey responses are usually imprecise and unfaithful and can lead to gaps in information when taken anonymously.
Survey questions tend to be superficial to encourage completion and regrettably lack a lot of clarification. Above all, surveys don’t benefit cross-department discussions, leading to a shallow and irrelevant risk assessment matrix.
3 Benchmark risks
This means studying the market to find insights related to your organizational risk. Reports and market research can go unnoticed in your risk assessment process. Benchmarks focused on specific processes or departments can improvement your metrics.
It is common in some industries to publish studies on issues impacting businesses performance. This data usually shows how likely internal and external risks are to impact companies. Other great sources of risk knowledge are trade associations, government agencies and regulatory bodies.
4 Multiple risks scenarios
Each area of the company has its own level of risk awareness. This means that teams and departments have their own context and comprehension of risk issues. This comprehension of the risk itself can undermine attention to risk correlations. That is why critical scenarios can appear out of nowhere, because the company is unaware of the risk correlation between departments. Risk in each department must be assessed more broadly, integrating these risks into the company’s strategy in relation to its mission, vision and values. Creating and exploring wide-ranging correlated risk scenarios can provide a forecast and protect the organization’s objectives.
5 Key uncertain risks
5 Key uncertain risks: Risks that create uncertainties in workflows must be constantly followed. The use of the causal model, for example, can provide insights into how data connections drift apart, this situation creates uncertainties that impact key workflows. This vision of data relationships creates a more complex risk assessment matrix and can be seen as a complementary view of strategic planning.
Quality of conformance are essential for continuous improvement. Achieving management excellence requires a good software to operate with maximum efficiency. Choosing the right technology for your business is key to success.