Whatever your reasons or motivations might be, if your organisation’s objective is to have an effective risk management strategy in place, then ISO 31000 can provide the principles, framework and a process for managing risk. ISO 31000 is not a certifiable standard; the standard is a set of guidelines which provide guidance for internal or external audit programmes. According to ISO 31000, there are two important building blocks that form the core of risk management:
- Risk assessment
- Risk treatment
Under ISO 31000, each of these stages has a whole section of its own – they go into detail about best practices for identifying risks, how to analyse them in terms of probability and severity, and how they can be evaluated in terms of the company’s risk appetite. This article discusses the importance of Risk Assessment.
What is Risk Assessment?
Risk assessment is the overall process of identification, analysis and evaluation of any given risk. It can be a systematic examination of a task, job or process that a risk professional carries out at work for the purpose of identifying significant hazards. For example, the risk of someone being harmed and deciding what further control measures to take to reduce the risk to an acceptable level. The process will vary between organisations, but it should start with identification of hazards, analysis of who and what might be harmed, evaluation of the risk, documentation of the risks, taking action and review. Your organisation should conduct a risk assessment systematically, interactively and collaboratively, drawing on the knowledge and views of stakeholders. It should use the best available information, supplemented by a further inquiry as necessary.
Risk assessment breaks down into:
- Step 1: Identification
- Step 2: Analysis
- Step 3: Evaluation
1. Risk Identification
The purpose of risk identification is to find, recognise and describe risks that might help or prevent an organisation achieving its objectives. Relevant, appropriate and up-to-date information is important in identifying risks. The organisation can use a range of techniques for identifying uncertainties that may affect one or more objectives. The following factors, and the relationship between these factors, should be considered:
- Tangible and intangible sources of risk;
- Causes and events;
- Threats and opportunities;
- Vulnerabilities and capabilities;
- Changes in the external and internal context;
- Indicators of emerging risks;
- The nature and value of assets and resources;
- Consequences and their impact on objectives;
- Limitations of knowledge and reliability of information;
- Time-related factors;
- Biases, assumptions and beliefs of those involved.
Your organisation should identify risks, whether or not your sources are under your control. Consideration should be given that there may be more than one type of outcome, which may result in a variety of tangible or intangible consequences.
2. Risk analysis
Risk analysis allows you to understand the nature of risk, its characteristics and level. Because an event can have multiple causes and consequences and can affect multiple objectives a risk analysis should involve a detailed consideration of uncertainties such as risk sources, consequences, likelihood, events, scenarios, controls and their effectiveness.
Risk analysis can be undertaken with varying degrees of detail and complexity, depending on the purpose of the analysis, the availability and reliability of the information, and the resources available. Analysis techniques can be qualitative, quantitative or a combination of both, depending on the circumstances and intended use.
Risk analysis should consider factors such as:
- The likelihood of events and consequences;
- The nature and magnitude of consequences;
- Complexity and connectivity;
- Time-related factors and volatility;
- The effectiveness of existing controls;
- Sensitivity and confidence levels.
A risk analysis is likely to be influenced by a wide range of variables, from any divergence of opinions, biases to perceptions of risk, from judgements, quality of the information used to the assumptions and exclusions made and any limitations of the techniques and how they are executed. These influences should be considered any risk analysis, documented and communicated to any decision-makers involved in the process.
It is important to remember that any highly uncertain event can be difficult to quantify, and this is an issue. If you find yourself in such a situation, using a combination of techniques generally provides greater insight. Risk analysis provides input to risk evaluation, to decisions on whether risk needs to be treated and how, and on the most appropriate risk treatment strategy and methods. The results provide insight for decisions, where choices are being made, and the options involve different types and levels of risk.
3. Risk evaluation
Risk evaluation can support your decisions. Risk evaluation involves comparing the results of the risk analysis with the established risk criteria to determine where additional action is required. This can lead to a decision to:
- Do nothing further;
- Consider risk treatment options;
- Undertake further analysis to better understand the risk;
- Maintain existing controls;
- Reconsider objectives.
Any decisions should take into account the wider context and the actual and perceived consequences to external and internal stakeholders. The outcome of risk evaluation should be recorded, communicated and then validated at appropriate levels of the organisation.
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Who should do risk assessments?
Well, by law, every employer must conduct risk assessments. Risk assessments should always be carried out by a professional who is familiar to risk, a person who is experienced and competent to do so.
Competence can be expressed as a combination of knowledge, awareness, training, and experience. Remember competence does not mean you have to know everything about everything, competence also means knowing when you know enough or when you should call in further expert help.
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Risk Assessment and ISO 31000
ISO 31000 was developed by hundreds of experts in risk mitigation, from thirty countries. This international effort produced a standard that is worldwide and represents best practices and leading operations for risk management. Organisations can trust that they are following a tested, robust standard to increase success. The standard converts risk management into a set of “friendly” and actionable – and straightforward to implement – guidelines, regardless of the size, nature, or location of a business.
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