In the world today, there are threats everywhere. This is because everything done by science and technology comes with risks. These risks are now spread towards every sector and in today's world, we have compliance risk, cybersecurity, and fraud risk. 

All these risks can pose a significant threat to the environment and have a more significant impact on a company‚Äôs bottom line. For example, the COVID-19 pandemic posed a magnanimous external risk that pushed businesses to the point of rapidly developing a risk assessment plan that could help them. 

No one can ever truly eliminate risks. Be it in relationships or businesses or even politics, risk can never be eliminated completely. However, the best prevention method is to manage your risks. You can find the best strategy to manage risks by first defining the risk and then assessing it. 

Once you have assessed it, use a risk assessment matrix to analyze it. This will give you a solid understanding of your risk environment and how you can proceed to manage it before it even occurs. It will also help you save time, resources and money.

In this article, we break down carefully the concept of risk assessment, how to develop a risk assessment matrix, its advantages and its limitations.

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What is a Risk Assessment?

The term risk assessment is used to explain the general process or method of identifying risk factors and hazards that can possibly cause harm. This is also referred to as hazard identification. 

Risk assessment checks for procedures and situations that can potentially cause harm especially to people. At the point where risk has been identified, the next thing to do is to analyze the risk through a process known as risk analysis and then evaluate it.

The process of evaluation is also known as risk evaluation. The evaluation will provide insight into the severity of the risk and what measures must be put in place to combat it.

The elimination and control of risk must be decided on immediately to ensure there is no further spread of the risk which can lead to more harm.

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Benefits of a Risk Assessment

Risk assessment is important because it helps individuals, businesses, groups, and governments to understand what is at stake and what percentage of damage or harm can be done. Risk assessments are the occupational health and safety management plans put in place by organizations.

Some of the benefits of risk assessments are that they help to:

  • Create awareness about potential risks and hazards.
  • They also help in identifying who may be at risk, and in what number. For example, it could be demography, a particular occupation such as cleaners, contractors, or the people across the globe as in the case of the coronavirus.
  • Risk assessment also determines whether an identified hazard requires a control program.
  • It determines whether an existing control measure is sufficient to eliminate the risk or if more measures should be put in place.
  • When risk assessment is done at the design stage, it can prevent some illnesses or injuries. For example, polio immunization is given to children in infancy.
  • It also makes risk and hazards control measures a priority.
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What is a Risk Matrix?

A risk assessment matrix is a tool that shows the possible risks affecting a business.

The risk matrix is based on two intersecting factors: the likelihood that the risk event will occur, and the potential impact that the risk event will have on the business.

In other words, a risk matrix is a tool that helps you visualize the possibility vs. the severity of the potential risk. It is also known as the risk matrix severity or probability.

Depending on the likeliness of the risk and severity, risks can be categorized as either high, low, or moderate. In the risk diagram, risks are segregated based on their likelihood and their impacts on the level of damage, so that worst-case scenarios can be detected at a glance

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What is the Risk Matrix Used For?

Risks can be in many forms. It can be operational, strategical, external, and even financial. The risk assessment matrix, however, is applied by presenting different risks as a chart, color-coded by the level of severity. This is represented by the colors red, yellow, and green. The red color identifies the high risks, the color yellow represents the moderate risks, while the green color monitors the low risks.

All the risk matrix also has two axes: one axe measures likelihood, and the other axe measures effect.  

Risk events that are likely to occur may have a 61%-90% chance to occur, while risk events that are rare or highly unlikely to occur have less than 10 percent chance of occurring. An insignificant effect may cause a negligible percentage of damage because of the level of the business and its risk appetite.

Regardless of the parameters, you set for the risk event and its likelihood and impact, a fast estimate of the threat landscape is provided by the risk assessment matrix. When the threat landscape is calculated in this way, audit, risk, and compliance professionals can easily decide on how to minimize what is called value killers. Which refers to the loss events that can have a significant effect.

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How to Conduct Risk Assessments with a Risk Assessment Matrix

  1. The first thing is to identify your risks. Where is the risk, and what is it?
  2. Calculate the percentage of likelihood. For each risk, determine the probability that the risk will occur.
  3. Calculate the potential damages or consequences. What is at risk, what will be the percentage of loss?
  4. Calculate the risk rating. Is it a high risk, a medium risk or a low risk.  How great or low will the impact be if it occurs. Under the potential severity of the risk occurring.
  5. Create an action plan. Develop a plan or control measures to mitigate the risk. Use any of the control categories such as operational measures, administrative controls, e.t.c.
  6. Plug your data into a matrix. Once you are done brainstorming, assessing, and analyzing, draw your data into a matrix diagram. The risk assessment matrix will simplify the information from your risk assessment form, and make it easier to detect the major threats in one glance. 

How to Create a Risk Matrix

Creating a risk assessment matrix may not be a complicated procedure even though the risk keeps increasing in magnitude and in complexity. There are commonly four basic steps in creating a risk assessment matrix. They are:

1. Identify the risk landscape: you have to create a comprehensive visual of the overall risk because the magnitude of the risk keeps growing.

To determine this, have a brainstorming session with your team to discuss the potential risk. You can have a lead way by discussing the operational risk, the strategic risk, the financial risk, and the external risk. This will help you in ranking the risk according to the level of threat it poses.

2. Find out the risk criteria: Once you are done brainstorming the risk according to their level of significance, you should decide on the criteria you would use to evaluate the risk.

As we have earlier mentioned, risk assessment matrices use two intersecting criteria which are likelihood and impact or effect. While one of these criteria determines the probability of the risk of calling, the other shows the complexity. Now you and your team should decide on how best to mitigate the risks.

3. Assess the risk: use the risk criteria that you have determined to access the risk. Use a predefined scale to give a qualitative risk analysis. You can use this three-part scale to assess the severity of the risk. They are high risk, medium-risk, and low-risk."risk-meter"

4. Prioritize the risks: once you're done accessing your waist make a comparison between the level of the risk based on their severity. Is it a high risk, a medium risk, or a low risk? Also, what is the risk criteria in terms of likelihood and impact? The risk with the highest likelihood and impact should be prioritized, and a risk assessment plan that will eliminate the risk should be put in place.

It is important to keep updating the risk assessment matrix because the risk landscape evolves constantly so try to update the risk assessment matrix many times in a year so that the change in your risk environment can be reflected. If you failed to update your risk assessment matrix you might miss an emerging risk that could pose a high threat.

Examples of a Risk Matrix

Let us consider this example.

If you want to paint a room you need a step stool 2 reach the higher areas in the room. This is because humans cannot stand higher than 3 feet at any point in time. To understand the risk the assessment team will analyze the situation and determine if painting from a step stool at 3 feet can cause;

Short-term injuries such as sprain or strain in case of a fall. Also suffering a sprain that is severe may take several days before it heals up and this outcome can be similar to a medium level of risk. (Likelihood)

This type of accident does not happen frequently in a working lifetime. This is because painting is not an everyday job you only paint once till there is a need to repaint. The scale of probability here indicates low risk.

Advantages of the Risk Matrix

  1. The risk matrix creates awareness about hazards and risks.
  2. It also helps to identify who may be at risk.
  3. It helps to decide on the best control program that is required for a particular hazard.
  4. Risk matrix prevents the possibility of injuries or illnesses, especially when done at the planning stage.
  5. It Identifies the most likely risks.
  6. It uses excel diagrams to create and present the risk situation.
  7. It shows the risk situation in a simplified form for everyone. Hence, they will need no background knowledge to understand it.

Limitations of Risk Matrix

Risk can oversimplify how complex or volatile a risk is. Although some risks can be static, while others can change for good or for bad in a minute. 

Another limitation is that the analysis may lack comprehensive data. There may be insufficient time to offer training, or to carry out a thorough investigation.

Lastly, the evaluation for risk matrices is subjective. This is because the risk categories lack differentiation.

How to Manage Risks

The first thing to do is to establish the priorities, then decide on ways to control each particular risk. Risk can be managed even if not totally eliminated. You can make use of these control methods. They are mostly grouped into the following categories:

  • Risk Elimination 
  • Using engineering controls.
  • Using administrative controls.
  • Using personal protective techniques.

Looking at the example cited above, the group can decide to implement risk control measures, which can include making use of a larger stool that can allow you to maintain stability when standing on it. the stool. Training can also be provided for you and others on the importance of resting the stool's legs always.

Conclusion

This article has exposed us to risk assessment and risk assessment matrix and it has shown us how to measure the likelihood and impact of risk. It is important that all business owners, organizations, and individuals put in the effort to mitigate risk or threat to life and properties. Also, the risk control measure should be implemented as early as possible once the risk has been detected.



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