In an environment where change is a constant, it is important to have professionals who will invest the time and effort it takes to understand each client's business and how best to manage total cost of risk.
The Risk Management process start by building a Risk Matrix.
By creating a Risk Matrix you will have a thorough understanding of your risk environment and how individual risks compare to one another. You can use this to strategically prioritize your risks and determine where to use your limited resources.
A Risk Matrix is built by assigning the frequency of a risk, to thee level of impact, and the associated severity/urgency level. Frequency is how likely the risk is or how often you think it will occur; severity/urgency is how much of an impact it would have if it did occur.
The higher a risk ranks for these qualities, the more threatening it is to your organization.
The most severe and frequent risks, your primary risks, are critical and would hinder your ability to conduct business. Risks that are severe but unlikely are those that need to be watched but don't require heavy mitigation strategies. Risks that are highly likely but insignificant, your monitor risks, will not impact your ability to continue operations. Finally, the risks that are low in both frequency and severity, your low control risks, can be revisited on a yearly basis to ensure the risk remains low.
Risk matrix are a valuable tool as they allow you to:
- Understand the risk environment
- Prioritize mitigation strategies
- Allocate limited resources
- Receive better insurance premiums