Risk Analysis (I)
What is the Risk? What are the methods of Risk analysis?
Posted: Oct 2008
Entrepreneurship is defined as set of different activities that consist the business development. These activities are starting with idea, project development, evaluation, investment, development, start-up, expansion, harvesting, re-evaluation and cycle improvement. All these activities are important for sustainable development of the business.
But during this step-by-step business process, there are many situations where the whole process can be jeopardized by incidents that may have more or less influence. The whole process is planned in the best manner. But regardless how perfect the execution plan is, there is a certain possibility that some occurrences will deviate plan from it's path until a certain extent. The possibility of incident occurrences that will deviate execution of the plan is defined as a Risk.
The Risk is the part of every business. There is always a chance that something will happen that will change the development of plan. Since the Risk is inevitable companion of the business, it is necessary to provide Risk Analysis and Risks management, in order to prevent negative occurrences and to alleviate consequences, if they appear.
The Risk analysis and management of the Risk is not tangible as other business indicators, therefore it cannot be calculated precisely. In order to expect the unexpected, it is necessary to use subjective judgment in conjunction with structured analytical tools. During the Risk analysis three main area are in the scope of the Risk Analysis Tool:
Occurrence – This Risk analysis indicator expresses possibility of Risk to happen. Higher the possibility, the higher is the rating.
Impact – This Risk analysis indicator Shows how big impact the Incident will create in case that happens.
Detection – Failure to detect the incident before happening is increasing the Risk. This risk analysis indicator shows detectability failure. More chance of detection failure means higher grade of the Risk.
These three factors of Risk analysis are rated from 1-10. The Total Risk assessment is expressed as a multiplication score of Risk factors:
Risk = Occurrence x Impact x Detection
This is the analytical tool for a Risk assessment. This tool should be used systematically in a Risk analysis process. But how should we expect the unexpected in a relevant manner?
The recommended flow of Risk assessment process is:
Start Risk assessment process before Business Planning.
Organize workshop of Risk Analysis with mid and top level managers of different functions
Train participants about structure of the Risk universe. Brainstorm possible Risks of the business. Write down all potential risks.
Rate all risks according the Risk Analysis Tool. Every participant of the workshop should vote from 1-10 for Occurrence, Impact and Detectability for every identified Risk.
After compiling of all data create Risk Analysis Report. Based on this report, prepare plan of preventive and corrective measures, according the importance ranking of every risk.
Start next Risk assessment workshop with re-evaluation last Risk Analysis Report.
This approach is giving you the chance to anticipate potential Risks and to be prepared for the situation of incident occurrence. It is true that Risk analysis is still the game of expecting of unexpected, but with this model you will be better prepared and less vulnerable for the potential incidence occurrences.
The Fishbone Diagram can be helpful tool in analysis of risks.
Risk Register as a Tool of Risk Management
Risk Universe: People Assets
Risk Universe: Product and Marketing Assets
Risk Universe: Infrastructure Assets
Risk Universe: Information Assets
Risk Universe: Finance Assets