How to Assess and Analyze Risks in Business: Easy Steps to Follow

To analyze risks in your business, you need to identify, assess, and prioritize potential risks that may impact the achievement of business objectives. It involves evaluating the probability and impact of various risks, such as financial, operational, strategic, and compliance risks.

Risk analysis must be an ongoing process to help you understand the potential consequences of different scenarios and develop efficient risk management strategies.

By employing risk management best practices and technology, you can enhance your business’s resilience and maintain a competitive edge in the market.

How to Identify and Evaluate Risks Effectively

 

Before you can analyze risks in your business, you have to comprehensively search for risks that may negatively impact the organization’s operations, finances, and reputation. These could be factors like compliance, cash flow, cybersecurity, operational processes, and market trends.

15 Common Risk Identification Techniques

To help you identify risks in business, you can use any one or a combination of the following techniques:

1. Brainstorming: Having a group discussion with key stakeholders can help identify potential risks.
2. SWOT Analysis: Using this technique to identify your organization’s strengths, weaknesses, opportunities, and threats can help highlight risks.
3. Checklist Analysis: Using predefined checklists can also help identify risks for your business.
4. Expert Interviews: Hiring consultants who are experts in identifying risks is an option, if it makes sense for your business.
5. Scenario Analysis: Using hypothetical scenarios and analyzing them can be a good way of identifying associated risks.
6. Cause and Effect Diagrams (Fishbone or Ishikawa diagrams): A straightforward cause-and-effect chart can bring potential causes of risks to the fore.
7. Delphi Technique: This utilizes anonymous surveys to gather expert opinions on risks.
8. Historical Data Review: Analyzing past incidents or data can sometimes help identify recurring risks.
9. Failure Mode and Effects Analysis (FMEA): Systematically evaluating potential failure modes and their effects is a well known risk identification technique.
10. Risk Workshops: Workshops conducted by risk experts with stakeholders is another effective way to identify risks.
11. Documentation Review: Reviewing project plans, contracts, and other documents periodically can point out risks that may not be very obvious.
12. Assumption Analysis: Challenging assumptions underlying business decisions can play an important role in identifying business risks.
13. Root Cause Analysis: Using a simple root-cause analysis tool can uncover underlying causes of problems and business risks.
14. Risk Register Review: Reviewing existing risk registers or databases for overlooked risks may seem like a routine task, but is often overlooked in business scenarios.
15. SWIFT Analysis: Considering Social, Work, Information, Financial, and Technical aspects for risk identification is an extremely effective way to identify potential risks.

These tools can help kickstart your risk analysis process by highlighting the threats to your business. After you’ve identified the risks, you need to evaluate and categorize them.

 

Principal Business Risk Categories

Effective risk assessment is vital for mitigating potential threats in business, including financial risks, marketing risks, operational risks, and workforce risks.

Established frameworks, such as a Probability and Impact Matrix, aid in evaluating risk elements—predicting the likelihood of events and their impact.

Here are some examples of specific risks in different business models:

• Ecommerce: Cybersecurity risks, website downtime & outages, payment system vulnerabilities
• Construction: Occupational safety & health risk, weather fluctuations & natural disasters
• Manufacturing: Equipment failures, flawed product & workforce quality, regulatory non-compliance
• Retail: Physical security threats, employee theft, changes in consumer demand
• Healthcare: Protected health information (PHI) breaches, compliance with regulations, workforce shortages

Having identified and categorized the risks, you will need to analyze them so you can come up with a robust plan to manage the said risks.

How to Analyze Risks in Business and Assess Their Impact

By conducting a thorough risk analysis, decision-makers can gauge the likelihood of the risks, prioritize them based on severity, and establish appropriate mitigation plans.

Using quantitative and qualitative tools to assess risk probabilities and impact can help you grasp the impact and severity of unaddressed risks.

Based on the risk severity, your organization should refine initiatives to mitigate potential damages. Performing this step diligently is crucial and needs creating an environment that fosters a culture of precise risk management. 

An Example of Assessing Risks Based on Severity

Let’s say an information security company identifies 2 risks in their business–Unauthorized system access and inadvertent errors.

By examining the impact and severity of each risk, they come to the following conclusions:

• Unauthorized changes to the system can lead to loss of availability of services that can seriously impact operations. Thus, they assess it as High Risk.
• Upon consulting the key stakeholders, they find that inadvertent errors are less damaging to their business, and in some cases, completely preventable. Thus, they classify it as Low Risk.

After analyzing and assessing risks, the next step is to mitigate the said risks.

Strategic Risk Mitigation and Oversight

Mitigating, preventing, and closely monitoring business risks are essential for ensuring a safer, resilient future.

An effective risk mitigation strategy provides valuable insights, enabling organizations to allocate resources efficiently and develop plans tailored for success.

 

Effective Risk Reduction Strategies

• Develop organizational risk thresholds or severity ratings and choose to avoid or manage the risk based on the threshold.
• Bolster security measures and response protocols to minimize the impact of risks that fall within the organization’s risk threshold.
• Hire trained risk managers and continuously upskill teams to ensure that many risks can be identified early on, so a management strategy can be developed.

Apart from mitigating risks, it is imperative that oversight measures are also in place.

 

Overseeing Identified Risks and Establishing Preventive Measures

Performing ongoing risk audits and breach scenario simulations can ensure preventive measures are in place before the risk even occurs.

Employing advanced analytics and automation technologies, such as predictive modeling and machine learning systems is also an excellent practice in identifying risks early.

In addition, you need to regularly analyze risks and communicate results to management and key stakeholders so they are aware of the risks and can play an important role in mitigating them.

Conclusion

Using a strategic approach to analyze risks and assess them can help your organization to formulate a robust risk mitigation and monitoring plan. Done well, it can help your organization maintain resilience, prioritize resource allocation, and make informed decisions when risks arise.

However simple the process may seem, analyzing and assessing risks requires dedicated resource allocation as well as perusing historical company data and utilizing industry-standard methodologies.

At VComply, we have created a Governance, Risk, and Compliance (GRC) software platform that has been an invaluable tool in helping many businesses analyze risks. From pre-built framework libraries to automated workflows and real-time alerts, VComply enhances efficiency and collaboration.

Please book a free demo to see how VComply can assist your organization analyze risks and safeguard against operational, financial, and reputation damage.