Risk Analysis & Risk Management How to Properly Evaluate & Manage Reputation Risks
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LEARN HOW YOU CAN CONDUCT AN ACCURATE RISK ANALYSIS TO PROPERLY IDENTIFY AND MANAGE THE RISKS THAT YOUR ORGANIZATION MAY POSSIBLY FACE.
Whatever role you have in your company or organization, you will very likely need to make certain decisions along the way that carry an element of risk.
There are two aspects of risk: The probability that something will go wrong The adverse consequences in the event something goes wrong
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Risks are hard to foresee, let alone get prepared for and somehow manage.
This is what makes good Risk Analysis a vital tool when the type of work you do is risky.
It also helps you determine how to manage these potential risks, and hopefully minimize their impact on what you have planned for the future. If you get hit with the consequences you never planned for, in time, money and reputation, quite a bit could be at stake.
It helps you pinpoint and understand the kind of risks that could affect you in your role.
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What Does Risk Analysis Encompass? Risk Analysis is the process by which you identify and manage any potential problems that might undermine your key business projects and plans. To reasonably undertake a Risk Analysis, all possible things that could threaten your business must be identified, and an estimate must be made as to the likelihood that these situations would actually occur.
Doing a proper Risk Analysis is not easy, it can be very complex since ou’ll eed to ha e detailed knowledge about security protocols, project plans, marketing forecasts, a lot of financial data and other things of relevance.
Once carried out, it serves as an essential tool in planning and when used properly, something that will save you a lot of time, money and your good name and reputation.
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When Risk Analysis Should be Used? Risk analysis is very useful in many different situations:
When making the decision to either move forward or not with a particular project.
In planning for major changes in your business environment, like a new competition, new rules and regulations or changing governmental policies.
In the planning stages of projects, which helps you foresee and avoid or neutralize any potential problems. When preparing for things like a natural disaster, technology or equipment failures, theft or the sickness and absence of key staff members.
During safety improvements involving potential workplace risks.
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How to Effectively Use Risk Analysis Steps for conducting a Risk Analysis:
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1 Identify Specific Threats The first thing that must be done in a proper Risk Analysis is to identify any existing and potential threats you might be facing.
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The sources of these threats can be any number of things: Technical
Advances or changes in technology and/ or technical failure
Financial
A failure in business, fluctuations in the stock price, changes in interest rates or non-availability of credit and/or other sources of funding.
Structural
Any type of situation that could harm staff, technology or products, such as toxic chemicals, falling boxes, and/or poor lighting, etc.
Human
The illness, injury, death or loss by another cause of a key part of the team.
Reputational
Loss of employee or customer loyalty and/or confidence, damage to reputation.
Natural
A serious disease, severe weather event, or natural disaster.
Political
Changes in governmental policy, public opinion, tax laws, or foreign influence.
Operational
An interruption in operations, disruption of supplies, losing access to vital assets, and/or failures in distribution network.
Project
Taking longer than planned on key tasks, going over budget, problems with the product or quality of service.
Procedural
Embezzlement and or/fraud caused by failures in accountability, controls and/or internal systems
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A variety of approaches can be used to carry out a thorough and complete analysis: Review the list above to determine if any of these possible threats pertain to your business.
Run through the various processes, systems and/or structures used in your business and evaluate the potential risks of any aspect of these. Do you see any vulnerability?
Speak to others who may have a different perspective. If you lead the team, get input from team members, and consult with others who work in the organization, or with people who have managed similar projects.
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The Repurisk experts can help you uncover potential threats. A Crisis Scenario Analysis can help you explore potential future threats.
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2
Estimate Your Level of Risk Once you’ve pinpointed and identified any threats you may be facing, you must evaluate both the chances of these threats actually happening and the possible impact they would have on your business. One way to do this is to make a best estimate in terms of probability of this particular event happening, and then multiply this probability by the amount of money it could cost you to make things right in the event it actually occurred. The result is a value attached to this particular risk:
Probability of Event X Cost to Repair = Risk Value
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For example, perhaps you’ve identified a risk and it has to do with the possibility your rent may be substantially increased. Your thought is that there may be an 80% of this actually happening in the next year. You’ve determined this because you know your landlord has increased the rests for other businesses in the complex. If this does come about, it would cost an additional $500,000 over the course of the next year.
The Risk Value of having a rent increase would be:
Probability of Event of 0.80 X Cost of Event of $500.000 = Risk Value of $400,000
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Negligible Minor
Moderate Significant Severe
High low risk Moderate risk risk
Extreme Extreme risk risk
High Minimum low risk Moderate risk risk risk Moderate risk Minimum High low risk risk risk
Minimum low risk risk
low risk
Moderate risk
Extreme risk
High risk
A Risk Impact/Probability Chart can be used to assess your risk. This helps to identify exactly which risks you should be focusing on. Take your time and do not rush through this step. Collect as much information as possible so that you are accurately estimating the probability of a particular event actually happening as well as the costs associated with setting things right and repairing the damage .Past data can be used to guide you if you have no other way to accurately forecast things.
High risk
Moderate High Minimum Minimum risk risk low risk risk risk
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How to Best Manage the Risk Once you've estimated the value of the potential risks you face, you can begin considering ways to manage these. It only makes sense to find approaches that are cost-effective. You do not want to spend more to eliminate a possible risk than it would cost you if the event actually occurred. It might make more sense to live with the risk than to go to great lengths, spending way too much to eliminate it. However, you do not want to compromise where personal safety or ethics are concerned. These risks do need to be addressed.
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Avoid the Potential Risk • I so e i sta es, it akes ore se se to a oid the pote tial risk. This turning a project down, and/or just skipping a risky activity.
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Share Your Risk with Others Another option is to share the risk, as well as any potential gain, with others.
These could be individuals, teams, another company or organization or even third parties.
For example, you already share the risk when you buy insurance for your office building and inventory with an insurance company (a third party), or when you take on a partner in a joint initiative to develop a product.
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Decide to Accept the Risk You always reserve the option to accept this risk. This may be all you can do when you cannot mitigate or prevent the risk, when any possible loss turns out to be less than it would cost to insure against the risk, or when any possible gain is worth taking the risk.
• For e a ple, ou ight de ide to a ept the risk of lau hi g a project late as long as the possible sales will cover the costs. • Prior to de idi g to a ept a risk, do a I pa t A al sis to look at all the possible consequences of accepting the risk. • There a e othi g ou a do a out the risk, ut it smart to decide on a contingency plan to deal with any consequences.
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Controlling a Particular Risk If you decide to accept a particular risk, there are several ways that you can diminish its impact.
Conducting Business Experiments can be a good way to evaluate and reduce a risk. You would roll out whatever high-risk activity you are contemplating, but on a very small scale and in a manner that you can control. Experiments can be used to see where problems happen, discovering ways to detect and prevent risks prior to introducing this activity on a substantially larger scale.
• Dete ti g risks i ol es pi poi ti g the stages i a pro ess he so ethi g ould take a ro g tur , a d putti g spe ifi steps in place to promptly rectify the problems should they happen. Detecting includes double-checking all financial reports, doing safety testing before the release of a product, and/or installing some type of sensors to find defects in products. • Pre e ti g risks ea s stri i g to pre e t a parti ular high-risk circumstance from occurring. This involves conducting training on health and safety, protecting corporate servers with firewalls, and totally cross-training team members.
• Pla Do Che k A t a e utilized to o trol the i pa t a risk situatio has o the o pa or orga izatio . It is similar to conducting a Business Experiment since it has to do with testing the various ways you can diminish a risk. This particular tool provides four phases that guide you through a complete analysis of the whole situation, the creation of and testing of a certain possible solution, seeing how well it worked, and if successful, incorporating the solution.
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Main Points • Risk A al sis has ee pro e to e effe ti e i ide tif i g a d assessi g thi gs that ould pote tiall ha e a ad erse effect on the success of a project or business. • It helps ou e a i e the real or pote tial risks that ou or our o pa on something or not.
or orga izatio are fa ed ith. It helps ou determine whether to move forward
• You o du t a Risk A al sis to ide tif pote tial threats a d esti ate the possi ilit of the • O e ou’ e deter i ed the alue of our pote tial risks, ou a • You
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