Risk Evaluation

Risk Evaluation

Risk Evaluation Jonathan Poland

Risk evaluation is the process of identifying and assessing the risks that an organization or individual may face. It is a fundamental business practice that involves evaluating the potential consequences and likelihood of different risks, and assessing the organization’s or individual’s ability to manage and mitigate those risks.

Risk evaluation can be applied to a wide range of activities, including investments, strategies, commercial agreements, programs, projects, and operations. It helps organizations and individuals to understand the risks that they face, and to develop strategies for managing and mitigating those risks.

There are several key steps involved in the risk evaluation process:

  1. Identifying risks: The first step in risk evaluation is to identify the risks that an organization or individual may face. This involves looking at a wide range of factors, including the organization’s operations, the industry in which it operates, and the external environment.
  2. Assessing risks: Once risks have been identified, they need to be assessed in terms of their likelihood and potential impact. This involves evaluating the likelihood of a risk occurring, as well as the potential consequences of the risk if it does occur.
  3. Prioritizing risks: After risks have been identified and assessed, they need to be prioritized based on their likelihood and potential impact. This helps the organization or individual to focus their efforts on the most critical risks and allocate resources accordingly.
  4. Developing risk management strategies: After risks have been prioritized, the organization or individual needs to develop strategies to mitigate or minimize them. This may involve implementing new processes or procedures, introducing new technology, or other measures.

Risk evaluation is an essential element of effective risk management, and it is important for organizations and individuals to regularly assess and evaluate the risks that they face in order to minimize their potential impact. The following are some basic steps in the risk evaluation process.

Identification

All stakeholders are asked to identify risk. This helps to improve acceptance of an initiative as everyone is given an opportunity to express all the things that can go wrong. Sophisticated entities may also identify risks by looking at databases of issues that occurred with similar programs, strategies or projects.

Probability & Impact

Estimating the probability and impact of each identified risk. This can be done as a rough estimate such as high, medium or low. In reality, most risks don’t have a single cost but a probability distribution of possible costs. For example, the risk of a traffic accident isn’t a single cost but a range of costs each with an associated probability estimate. Sophisticated entities such as insurance companies will model risks with probability distributions. Projects may estimate risks with a probability-impact matrix.

Moment Of Risk

Listing out the specific conditions that cause the risk to be more likely to occur. For example, the risk of a type of injury at a construction site may be associated with a particular activity or construction stage.

Treatment

Risk treatment options include acceptance, mitigation, transfer, sharing and avoidance. When a risk is mitigated or shared the probability and impact typically need to be reevaluated.

Secondary Risk

Evaluation of risks caused by treatments. For example, avoiding or mitigating a risk can result in new risks.

Residual Risk

Calculating the probability and impact of remaining risk after treatment. For example, the risk that remains after mitigation including secondary risk.

Monitoring & Review

Regularly identifying new risks that become clear as a program or project progresses. Overseeing the implementation of risk treatment and evaluating results.

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