A single hour of downtime on Amazon’s Prime Day cost the company up to 100 million dollars stemming from lost sales. Well, downtimes are just but a tip of the iceberg of the kind of the risk landscape that Amazon runs in. Just like it, your business too will always have risks that it has to co-exist with.
Sadly, comfort zones have never built business empires, and your business will never reach its full potential without dealing with these risks. A simple strategy, such as using a risk matrix to strengthen your risk management plan, can be invaluable in helping you grow your business.
Here is more about using a risk matrix to create the best risk management posture for your business:
What Is A Risk Assessment Matrix?
Simply put, a risk assessment matrix is a grid used to compare the probability of risk occurrence with the impact of its occurrence. The grid has the likelihood of risk occurrence on the Y-axis and that of its effects on the X-axis. Ideally, the probability of a risk occurring can be calibrated using either probability or a likelihood scale.
In most cases, the probability scale will be based on the percentage of occurrence while the likelihood scale will range from very likely to unlikely to happen. On the other hand, the risk impact scale runs through minor, moderate, major, and critical impact. While a risk that can stall business will be considered as critical, one that will barely change anything can be termed as minor.
Calculating the Risk Matrix
Since the chances of occurrence and impact will measure risk, it can be quite tough to tell apart two types of risks that seem similar. It can be even harder to identify what risk to prioritize. With a risk matrix, you can easily calculate the magnitude of the risk and decide on which risk is more severe.
You will need to multiply the impact of the risk with the likelihood of occurrence. This will give your business’ decision makers a visible idea of what poses the greatest threat to your business’ growth.
The Importance of a Risk Assessment Matrix
Other than in the prioritization of risk, a risk assessment matrix makes the analysis of risk quite simple. It paints a picture of the risk posture of your business and tells a story of what needs to be done. When it comes to decision making, it also makes it easy to identify time-sensitive business threats and the best way to eliminate them.
Its Success Depends On Your Risk Identification Efforts
The risk assessment matrix will be worthless if you use it on only half of your business risks. You need to dive deep into your risk landscape to truly understand every risk your business faces and create a risk assessment matrix that paints the entire picture. It trickles down to the risk identification tactics that you rely on, and brainstorming might not be the best method.
While you might think that you know what risk your business truly faces, there is a lot more you can learn from the customer, experts, and even the entire market. Look to diversify your risk identification methods though including things like market research, expert opinions, customer surveys, and pattern analysis.
Once you have all this data in your hands, it becomes easy to identify the likelihood of risk occurrence and the impact it can have. Be sure to include all factors that concern the risk as they will all matter during risk analysis.
Using a Risk Assessment Matrix in Risk Management
Risk management will mainly entail dealing with risks at all angles, including paying attention to the outliers in your data. Sadly, risk analysis without a risk matrix might be too ambiguous, with there being more than one way to eliminate threats. However, the matrix can be pivotal in understanding how treating a risk will either affect its impact or likelihood to happen.
With it as a guideline, it becomes easy to pick the most effective way to deal with risk. It can help you determine the best risk treatment option for you, which can range from risk acceptance, transfer, avoidance, or mitigation.
The Value of Having a Great Staff
While the matrix might be unbiased, the opinion of your staff is. You might have all the data on treating risk, but it is the decision makers who decide the fate of your business. As a result, you need to work with a group of professionals that are adept in risk management.
If you choose to work in collaboration with the entire workforce to make the risk treatment decision, everyone should feel free to oppose ideas. This open forum of discussion will offer diverse opinions on how to mitigate risk, making the decision a more informed one.
Storytelling can be a great tool in risk management, and a risk assessment matrix helps depict the story of your threat landscape. However, it can only be effective with enough risk identification and a great risk management team. Be thorough in your risk identification process to protect your business better against threats.