A Guide to Conducting Risk Assessment

Why Learn the Process of Risk Assessments?

Risk assessment is a systematic approach to determining and evaluating potential threats and vulnerabilities that organizations may encounter. There is no strict standard for conducting risk assessments. Companies can customize this based on their needs. However, learning the fundamental process in conducting risk assessment is crucial in assessing identified or predicted hazards and addressing the challenges effectively. Ultimately, risk assessments, when conducted correctly, safeguards the employees, customers, and the company’s reputation.

Benefits

Big or small, businesses across industries are exposed to a myriad of risks. If unmitigated, these could impair their ability to operate, decrease their revenues, and eventually lead to their collapse. Having a proper guide in conducting risk assessments helps companies achieve the following:

• Data-driven insights – Proficiently assessing risks—recognizing the threats and their potential impacts—empowers businesses to make better choices about their current and future workflows. 

• Proactive risk mitigation strategies – Having a base understanding of present or emerging risks and how to handle them facilitates quick issues resolution. 

• Business resilience – Learning how proper risk assessment is done fosters preparedness in any scenario, enabling organizations to recover even from the most dire circumstances.   

The Detailed Process of Assessing Risks 

Having a firm grasp of this methodology and systematically following the procedure facilitates a more holistic way to tackle risks. When qualified professionals (e.g., risk analysts, managers, or officers) possess a thorough mastery of the process, they can modify it in light of certain scenarios to maintain efficacy in continuously evolving environments.  

Identify the Risks

The first step in this process is to determine the hazard or threat and its potential source in the corporate environment, from internal factors (e.g., operational workflows, personnel, finance) to external ones (e.g., market trends and regulatory changes). This is crucial in understanding the extent of the danger and vulnerability of the company.

Best Practices:

• Do a full review of the internal processes, historical risks, and current control measures.

• Keep abreast of industry trends and competitors’ actions.

• Brainstorm with other department heads, using SWOT analysis to assess the company’s standing.  

Evaluate the Risks

The next step is to assess the gravity of the risk, the likelihood of its occurrence, and the individuals who will be impacted, either directly or indirectly. This phase helps managers rank the risks from the most severe to the more manageable ones so they focus on what to mitigate first and better allocate resources for the task.      

Best Practices:

• Benchmark collected data against industry standards and competitors for better goal setting. 

• Use the risk matrix to visualize the probability and the severity of the threat.

• Employ both qualitative and quantitative analysis to acquire subjective and detailed information for go/no-go decisions. 

Implement Control Measures

In this stage, relevant personnel develops and applies the measures to reduce or, if possible, eliminate the risk. Three key strategies can be used:

• Transfer of risk– The risk can be passed on to another party through insurance or outsourcing. The use of indemnification clauses in contracts is a very good example as this assures the business that any potential loss will be covered by another party. 

• Avoidance – This means abstaining from actions or choices that expose the business to considerable danger. For instance, manufacturers could refrain from handling or storing hazardous materials since they cannot deal with them. 

• Reduction – These are measures that minimize the impact or likelihood of risks. Installation of fire alarms, sprinkler systems, and extinguishers in buildings can significantly decrease the grave effects of a blaze in case of fire emergencies. 

Best Practices:

• Create a hierarchy of controls and inform everyone involved about these. 

• Consider high-tech solutions like IoT monitoring systems.

• Ensure employees have adequate skills and knowledge to prevent or deal with incidents through training. 

Document the Event

The entire risk assessment process must be recorded and stored for transparency and future reviews. This should include the findings, actions taken, and even photos or videos as these can provide the full context of the entire session. 

Best Practices:

• Produce a standardized risk assessment template. A clear structure aids in a better understanding of the findings and facilitates efficient handling of subsequent evaluations. 

• Store the report in a centralized database for easy access by all stakeholders.

• Track the progress of the control measures put in place.   

Review the Assessment

Periodic reassessment of the identified threats and developed control measures should be done to ensure their continuous effectiveness. This is a must to adapt to changing circumstances. 

Best Practices:

• Schedule audits based on the severity of the risk and the changes in business operations and industry trends. 

• Do urgent reviews when incidents and near-misses occur.

• Invite third-party auditors to get external perspectives.