Assessing Your Company’s Level of Risk

  • aljihad
  • October 5, 2018
  • There are three steps to risk assessment: the identification of factors, their prioritization, and classification. If done correctly, a company’s risk assessment can correlate any risk that may depend on each other and thus avoid wasted time. Attention and resources could, therefore, be used for the risks that are worth it.

    Assessing your risks

    Risk assessment examines and determines the probability of risk occurrences. The first step is to identify the events. An event is merely an incident or fact that could affect the implementation of a strategy or the pursuit of a goal. There may be several events, so remember that before implementing a plan.

    Some things may have a negative impact and others a positive impact. Risks may be due to external factors like:

    • Economic factors: Change in level of competition, market forces, and economic
    • Environmental: Natural disasters, etc.
    • Political change: Change of government and legislation
    • Social order: Demographic changes and social priorities
    • Technological changes
    • Internal: Infrastructure repairs that are unexpected
    • Staff: accidents at work, strikes, and so on
    • Processes: quality problems, technology, etc.

    This phase is the first step toward identifying and assessing risks. Risk factors are events or variables that can aggravate a risk. Losing market shares is a risk. But not being prepared is a risk factor.

    A review of the organization’s strategies, financing plans and operations will provide clues as to the risk factors that may be associated. A top-down approach (from superiors to subordinates) is useful in this context. A qualitative analysis using past and recent data can also be helpful in identifying those factors that could affect the achievement of the goals set by the company.

    Detailing risk factors

    The second stage of risk assessment focuses on risk factors. This step assumes the aggregation and detail of the information for each risk factor. The process should predict the probability, frequency, predictability, and potential effects on key performance indicators of these factors.

    A subjective judgment combined with a mathematical model, like discounting, is useful for researching the potential impact of risk on the company’s strategy, growth, reputation, human resources or systems. The final step in the evaluation is the risk classification. It assumes that the necessary identification action is well defined. Contact David Johnson Cane Bay to learn more.