The ever-changing risk management landscape and perceived business impacts have executives and corporate boards closely monitoring both existing and emerging risks to aid in strategic decision-making.
According to Proviti’s 12th annual Top Risks Survey report, economic conditions, including inflationary pressures, topped the list of risks in 2024. They have the ability to attract, develop and retain top talent coming in as second highest. Cyber threats, third-party risks, and heightened regulatory changes and scrutiny rounded off the top five risks.
Preparing for risks that can disrupt and impact your business is why organizations of all sizes and types need to establish risk assessment procedures and controls.
What Is a Risk Assessment?
A risk assessment is a process used to identify and analyze potential risks, evaluating their potential impact on business operations, employees, customers and other stakeholders.
A key activity of any risk assessment is to carefully analyze weaknesses or vulnerabilities that could make your organization more susceptible to a damaging event or potential hazard.
Risk Assessment Procedures
A clear and systematic process should be established to provide business leaders and key stakeholders with the information they need to properly mitigate existing risks and monitor new risks. In addition to protecting the business, a successful risk assessment program must meet legal, contractual and ethical standards.
Consider the following steps when creating a risk assessment program:
1) Identify risks—The first step in conducting a risk assessment is understanding all internal and external risks to the organization. Cast a wide net by reaching out to all stakeholders across the enterprise and including external parties such as consultants and vendors. As risks are identified, document them and add important information such as the business owner, potential impact and likelihood of occurrence.
As risks are identified, consider establishing a committee composed of senior leadership who can review and monitor all risks and approve the use of the resources needed to address them properly.
2) Assess risks — Once risks are identified, determine the likelihood that they may occur, and understand all potential business impacts. Consider using a three-to-five-point scale to rank each risk, with a different metric that indicates potential impact, such as a rating of “low”, “moderate”, “high” and “severe”. Key stakeholders must input into this process as this information will be used to prioritize remediation.
3) Prioritize risks and consider risk mitigation strategies — Prioritize all risks based on the assessment. Consider high-level solutions that can lead to mitigation, including applying a strategy to each risk. This will help senior leadership determine when and how risks will be mitigated.
Below are several common business strategies for addressing risks:
Risk Avoidance — The organization chooses not to move forward with an activity that carries a risk, therefore avoiding it.
Risk Acceptance—The organization chooses to accept and monitor this risk because the potential cost/effort to mitigate it is greater than the potential losses.
Risk Transfer — The organization chooses to shift part or all of a risk to a third-party service provider or insurance company.
Risk Mitigation — The organization creates an action plan to reduce the likelihood of a risk occurring, limiting any potential impact should it occur.
4) Implement controls — In most cases, mitigation plans will need to include controls, processes, actions, policies or systems that address the risk as a part of the business strategy. Consider creating a program that monitors the creation and use of these controls and ask the manager of this program to report progress regularly to senior leadership to provide direction and access to appropriate resources.
5) Monitor and review—The last step in establishing a risk assessment program is ensuring proper monitoring and review of all identified risks to understand when risk severity and likelihood of occurrence change and to ensure that controls remain effective. These factors can change as a result of things such as the introduction of new technology, regulatory requirements or the onboarding of a new vendor.
Risk Assessment Templates
Effective risk assessment programs maintain documentation to manage assessment activities, assess the overall risk to the organization, as well as review and update mitigation plans and controls. As a part of your risk assessment toolkit, consider adding the following documents to your organization’s risk assessment program:
Risk Assessment Matrix
A risk assessment matrix visually displays the likelihood of a risk occurring as well as the severity level of any impact. It is a risk assessment tool used by many organizations to help prioritize risks as mitigation strategies are developed. Typically, the matrix is an intersection of two axes with the likelihood of a risk on one and the potential impact on the other. Each plot in the matrix represents a specific risk, corresponding to their values. Matrices are commonly designed as a heat map, with lower priority risks “green,” medium priority “yellow” and critical priority “red.”
Risk Register
A risk register is a project management tool that serves as the single place for documenting risks within the organization. Ideally, all organizational risks should be in one place (e.g., a single version of the truth) to avoid duplicating efforts and to ensure that any information reported to senior leaders is clear and accurate. There are several components of a risk register:
· ID number and name
· Owner name
· Likelihood
· Severity
· Response plan (high-level)
Risk Assessment Process
A risk assessment process document will define how and when risk assessments take place within the organization; how risks will be documented, assessed and reported; and any internal or external communication that takes place. It is very important that key stakeholders provide initial input to this process as well as review the final output, as resources needed to carry out risk assessments may require approval from senior leadership.
It is particularly important to detail how risk mitigation will occur and oversee mitigation plans and activities that reduce organizational risk.
Risk Assessment Standards
Whether you are looking to model your risk assessment program on a defined standard or you just want to get ideas to help define aspects of the risk assessment program, there are several standards to review:
ISO 31000—According to ISO.org, ISO 31000 is an international standard that provides principles and guidelines for risk management. This framework enables you to review and consider standards to identify, analyze, evaluate and mitigate risks, as well as report and communicate risks across the organization. ISO 31000 has broad applicability across many sectors, and companies of any size can leverage its principles.
NIST SP 800-30 – The National Institute of Standards and Technology (NIST) Special Publication 800-39 was created to guide those conducting risk assessments of federal information systems and organizations. NIST SP 800-30 provides a detailed methodology for assessing risks to help organizations determine the right course of action as risks are identified. Many organizations, particularly those that are regulated, leverage NIST SP 800-30 due to its focus on federal information systems and organizations, as well as its its structured approach.
Risk Assessment Best Practices
Maintaining an active risk assessment program requires committed and proactive leadership, as well as the resources required to move the needle on lowering risks to the organization.
Driving risk awareness across the organization and creating a risk-aware culture means setting a clear understanding of the risks and how assessments drive mitigation. Consider a few best practices to create a risk-aware culture:
Establish a Risk Assessment Framework
As a part of the risk assessment process, a risk assessment framework will clearly state how assessments address risks that are important to the business and why they are necessary to meet business goals. It indicates when assessments take place, as well as the criteria for starting additional assessments as needed by the organization. It defines the criteria for evaluating risk, including the likelihood of occurrence and severity levels.
As with other important documentation, be sure key stakeholders review and approve of the framework.
Involve the Right Stakeholders
Stakeholders in the risk assessment process should be named, and roles should be defined. To ensure robust assessments, involve people from across the organization and at all levels. A clear structure with defined roles will enable those at the senior level to reach out to those directly responsible for different aspects of the assessment, ensuring that work fits with the business strategy.
Communicate Often
Communicating risks to the business and explaining why assessments help to mitigate these risks is essential. Consider tailoring your message to make it meaningful and relevant to different parts of the business, pointing out elements that intersect with employees’ workflow.
Lastly, engaging everyone in the organization by helping all employees understand their responsibilities in the process will help them own risk assessment and mitigation as part of their goals, which in turn will help the business achieve its goals.
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