Risk Analysis: What to Do and What to Consider

At its core, risk analysis is about identifying potential risks, ranking them, and making a plan for how your organisation will deal with the risks in the event of a crisis. Risk analysis is a prerequisite for good Risk Management.

Risk Analysis on a computer

How to Manage Risk

Through risk analysis, organisations can anticipate and prepare for unexpected events (deviations), minimise damage and optimise resources:

1. Identify Risks

This process starts with a broad brainstorming session where employees come together to identify potential risks. It involves answering the questions: "What can go wrong, where and when?" After collecting these risks, they are sorted and prioritised. Prioritisation ensures that the most urgent risks are addressed first, which is critical because it is not always possible or economical to address every risk.

2. Assess the Risks

After identification, the next step is to understand the scope and potential of each risk. This means examining the reason behind each risk and how it could affect the business. You should ask questions like: "What caused this risk?" and "How could it affect our business?". By understanding these factors, you can estimate the risk in terms of probability and impact.

3. Develop an Appropriate Response

After assessment, it is important to decide how best to manage identified risks. Each risk requires a unique response, and you need to ask yourself: "What actions can we take to prevent this risk?" and "If the risk occurs, what is our best response?".

4. Develop Prevention Mechanisms

After developing measures, it is important to monitor these strategies to ensure they are working as intended. Risks can change over time, so continuous monitoring and periodic review of the Risk Management process is important. In addition, companies should develop contingency plans based on identified risks. So, if a risk should occur, there is already an action plan in place.

Deviation Management in Risk Analysis

Before starting the work, it is important to determine the scope of the risk analysis of the specific risk and identify who should and can be involved in the work. You should also evaluate the risk by looking at the likelihood of it occurring and the consequences of the risk materialising.

Minimise your risks by having an action plan and checking the effect and outcome of the executed plan. Did it turn out as you intended?

What Is a Deviation?

Deviations are anything that does not turn out as planned or intended. A deviation is something that has happened. A risk is something that could happen. It is possible to see deviations as the evolution of your company and that all deviations are good deviations and linked to continuous improvement.

It's about going beyond just solving problems. It's about making sure the incident doesn't happen again.

An Example of Deviation Management

You get a puncture on your bike and repair the inner tube by sealing the puncture and putting the tyre back on the bike. You think the problem is solved, but deviation management is about taking the "problem" further in the process. The next step is to analyse the cause of the problem:

The cause of the problem (the puncture) was broken glass that you cycled over on the driveway of your house. Knowing this, you can now decide on a so-called "corrective action": An action you take to prevent the incident (puncture) from happening again.

Objectives and Perspectives of Risk Analysis

Risk analysis is proactive in nature and is the first step towards Risk Management. A risk analysis helps you plan your Risk Management, and a risk matrix helps you visualise your work. A risk matrix evaluates risk by likelihood and impact. Common colors are green for low risk, yellow for medium, and red for high risk.

The goal of the risk analysis is to be able to work proactively with your Risk Management and thus increase the chances of achieving strategic goals. The risk analysis work creates better conditions because management and the organisation, as a whole, have a common understanding of what risks exist and how they affect the organisation. This also helps you in your GRC work.

Perspectives to Use in a Risk Analysis

A comprehensive risk analysis can include, in principle, all risks. The list of potential strategic and operational risks is long. They can also be quite different depending on the industry, but here are some examples of risks and questions you could ask to explore them:

  • Legal: What are the legal risks and how can they affect us?
  • Personal: Do we have personal dependencies or personal security risks?
  • Customer-related: Are we dependent on certain customers or are customers in sensitive industries?
  • Processual: Do we have flows of goods that can be disrupted by accidents or weather?
  • Time-dependent: What happens if deliveries are delayed?
  • Financial: How are we challenged if our biggest customers delay payments?
  • Technical: What do we do if a software stops working?
  • Environmental: Do we have a proper mapping of our environmental impact?

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