Risk Assessment Matrix: Visualization of Risk Probability and Severity for Improved Risk Management
Blog | May 29th, 2022

Risk Assessment Matrix: Visualization of Risk Probability and Severity for Improved Risk Management

The risks that impact today’s enterprises are continuously increasing, changing, and becoming complex and interconnected. A company is vulnerable to several risks such as supplier relationships, disruption of the supply chain, manufacturing processes, employee safety, shipment of finished products, environmental incidents, and more.

Additionally, companies also have to deal with political and regulatory risks. Therefore, implementing a risk-based approach to quality & safety management has become key to maintaining a competitive advantage and mitigating the risks triggered by these factors.

Standards such as ISO and ICH Q9, are emphasizing a renewed focus on proactive risk management to improve quality performance. ISO 31000 provides organizations with guidance to develop an effective risk management strategy. This helps to identify and mitigate risks, ensuring the meeting of goals and protecting assets. ISO 31000 Risk management – Guidelines help businesses in any segment and any size manage risks by providing a framework.

The risk management process broadly encompasses:

  • Identifying and prioritizing the risks faced by the company
  • Assessing the probability of the occurrence of the risk
  • Evaluating the severity of the impact should the risk become a reality
  • Planning proactive CAPAs (and reactive CAPAs as well!)
  • Having an integrated approach to risk management, by including feedback and mitigative actions into the quality workflow

Aiding businesses in the risk management process is the risk matrix that helps companies understand their risk environment at a granular level. It allows them to set risk tolerance thresholds and implement controls to eliminate or manage the risks.

Risk Matrix – Scoping to Minimize Risks

A risk assessment matrix is a tool to visualize the potential risks impacting a business and is also called a probability and severity risk matrix. This visual tool helps plot the risk along the probability and severity matrices to assess how likely it is for a risk event to occur and the potential impact on the business. Based on the intersection between the two, risks can be categorized as low, medium, or high. This will help the company set priorities to develop an effective risk management strategy and process.

Risks can be of many types, including:

  • Strategic
  • Operational
  • Financial
  • External

Color codes are used to plot the severity of the risk on a chart with likelihood and impact as its two axes. Establish the criterion for identifying the probability of a risk to occur – for instance, 61-90%, 31-60%, 10-30%, signifying high to low. Identify what kind of an impact it can have – revenue losses, damage to reputation/equipment, vulnerability to accidents, environmental and safety issues, and so on.

The business must also have an understanding of its risk appetite – no business can ever be free of any risk so a willingness to take some risks within certain thresholds is inevitable. Understanding this limit will help with devising buffers that will cushion the impact.

By plotting this chart, the risk assessment matrix provides a quick snapshot of the threat landscape, empowering risk, audit, and compliance leaders to identify and implement controls that help to minimize the impact. This view helps in developing a targeted risk-based management strategy. It also helps with tracking the evolving risk environment and becoming agile in preparing for and responding to crises.

Creating a Risk Assessment Matrix

A risk matrix can be created using a four-step process.

Step 1: Identifying the Risk Landscape – A comprehensive view of the risk landscape is essential for businesses to get a bird’s eye view of the growing complexity of business risks. The participation of all key stakeholders in sharing the risks in their areas is the first step in creating this matrix. The risk can be categorized as strategic, operational, financial, or external and the process can begin from the broader view to narrowing it down to the functional level.

Step 2: Establishing the Risk Criteria – The next step is to determine the criteria to evaluate the risks and the controls to mitigate them.

Step 3: Assessing the Risks – Using the measurement criteria, assess the risks and define a scale to enable qualitative risk analysis. Typically, the risk is measured as high, medium, and low.

Step 4: Prioritize the Risks – Having created a chart of risks plotted against the axes of likelihood and impact, the high probability, high impact risks need to be addressed first. Developing a risk assessment plan that effectively mitigates them is important.

Constantly review and update the risk matrix to keep it on par with the new risks emerging.

Automate Risk Assessment with ComplianceQuest

Manually identifying, sorting, assessing, and prioritizing risks can be challenging even for a small business. There are many uncertainties, and knowing how it will impact a business can be pure guesswork without sufficient data to back it up. That is one risk no business can afford to take.

The ability to maintain a centralized repository of identified risks, whether at the project, department, or company level, plays a crucial role in making strategic decisions regarding potential threats. This repository ensures alignment with the latest standards, such as ISO 31000, ISO 14971, ICH Q9, and the risk principles outlined in ISO 9001:2015, ISO 45001, ISO 13485:2016, and ISO 14001. ComplianceQuest Risk Management Solution facilitates this process by expediting assessments, identifying and analyzing risk trends, and efficiently driving risk mitigation activities. With this solution, organizations can streamline their risk management efforts, ensuring a proactive approach to risk and enabling informed decision-making for enhanced business outcomes.

Its AI and analytics capabilities facilitate identifying potential risks based on history and trending data along with key metrics. With embedded intelligence, quality and risk management leaders can proactively start their risk mitigation efforts before it becomes a major challenge.

Along with providing a complete and accurate picture of the risk landscape, it also helps to prioritize and collaborate on risk mitigation efforts. Risk assessments can be launched from anywhere within the ComplianceQuest platform to analyze hazards associated with any process or activity such as audits, CAPAs, change, customer complaints, deviations, nonconformances, safety analysis, and environmental impact.

It also allows for defining risk tolerance thresholds and policies, and when met, initiating risk assessment automatically. Capturing trends, identifying patterns, and gathering insights become possible with access to quality data from across the enterprise in a unified manner.

To know more about ComplianceQuest’s Risk Management Software to implement a risk-aware quality management strategy, visit: https://www.compliancequest.com/lp/risk-management-solution/

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