Risk identification is is a deliberate effort to identify and record key risks associated with your workplace. The objective of risk identification is to understand what is at risk within your scope of work. Thereafter, to develop a comprehensive list of risks based on the threats that might prevent or delay the performance of the objective. Effective risk identification ensures that risk are managed effectively and efficiently.
Risk Identification Process
It’s is critical to do a comprehensive identification of any possible risk associated with the scope of work and to record it. The reason being that risks that are not recorded at this stage may be excluded from further analysis. For a company to effectively manage risks properly and efficiently they have to know what the risks are. Therefore it’s imperative that all risks are identified and addressed regardless of how big or small or if it’s within the company’s control or not. In addition, companies should adopt an on-going process to identify new risks that might arise from changing circumstances.
Senior officials should create an environment where everyone within the company should be able to identify risks. The more people involved the better chance you have of creating a comprehensive risk list.
How to perform risk identification
Having knowledge of how the business works are absolutely crucial to performing a risk assessment. Knowing the history of your particular work environment can help develop the best strategy for responding to those risks.
It’s important to understand the companies objectives when assessing risk. The process of risk identification must identify undesirable outcomes, unwanted events, and emerging threats. Understand that risk will always exist whether you have control of it or not. Along with risk there also exists an opportunity. This means that with identifying risk you might see the potential to improve performance.
Be careful not to get bogged down in theoretical detail. Your approach should always be how you can practically manage the risk.
Below are some key steps needed to effectively identify risks.
- Gather information from more that one source to identify risks.
- Document the risks.
- Understand what to consider when identifying risks.
- Apply risk identification techniques.
- Assess the effectiveness of the risk identification process.
Gather information from more that one source to identify risks.
Of course, gathering good quality information is important to properly identify risks. Therefore, it’s vital to gather information from as many sources as possible.
- Look at past records and try to find patterns.
- Interview employees.
- Look at companies doing similar work and make a note of how they deal with their risks.
- Look at evolving work environments and the impact it might have.
The idea of this exercise is not to re-invent the wheel. Your workplace most likely already has a risk management process in place. The idea is to improve it.
Document the risks
Typically at this stage you identify risk and then document them in a risk register.
- How and why the risk can happen (causes and consequences)
- Existing internal controls that may likely reduce the consequences of the risks.
- When identifying a risk consider – circumstance, cause, and likelihood.
- Ask – What is the likely outcome of the event? It is the combination of the above-mentioned elements that make up risk and this level of detail will allow the risk assessor to better understand the risks.
Understand what to consider when identifying risks
If you want to develop an exhaustive list of risks you need to approach the process in a systematic way. First start with defining the objectives and key success factors. This will help to install confidence that the process of identifying risk is complete and nothing has been overlooked.
Apply risk identification techniques
It’s always best to use risk identification techniques that suite the company’s objectives and capabilities. Having access to up to date information is important which should include relevant background information. Include people with appropriate knowledge involving the risk.
Use the following:
- Flow charts
- Brainstorm with a team
- System analysis
- Scenario analysis
- Judgments based on past experiences.
Assess the effectiveness of the risk identification process
It’s also necessary to document the risk identification process to help guide future risk identification. This is to help establish good practice and to draw lessons from previous mistakes. Include the following documentation.
- Information sources and participants
The “risk register” is the main output of a risk identification exercise. This register is a comprehensive record of all the associated risks identification. The main purpose of a risk register is, it’s the main source of information and helps management decide which risks to focus on.
The risk register should contain the following information.
- Risk category
- How and why,
- Impact the risk can have
- The cost associated with the risk
- Likelihood and consequence
- Risk level rating
- internal controls
- Risk profile
As mentioned at the beginning of the article, risk identification is a deliberate effort to identify and record key risks associated with your workplace. By identifying these risks you can understand what they are and develop a process to mitigate your exposure to risk. Every business should have a clear process in place in dealing with risk. If you have any questions please leave them in the comments below.