Risk matrix. Characterization, analysis and risk assessment

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

The risk matrix is a special system that allows you to determine with a fairly high degree of truthfulness the likelihood of risks occurring at an enterprise in a particular area of its activity. It is very useful in planning, reviewing potentially profitable projects and similar elements of the work of any organization. In order to understand all the features of this tool as accurately as possible, it is necessary to understand the entire planning system, how it is carried out, why it is needed, what it focuses on and how it works in certain circumstances. Understanding only one of these elements will not be able to give a complete picture, since it is in this case that it is important to collect all the information and generalize it into a single form. Only she will be able to show the situation most realistically in the context of certain events, situations, incidents, and the like.

What is a project risk

Project risk is an event that theoretically can happen. In the vast majority of cases, it will lead to certain problems in the work.enterprises. For example, the terms of delivery of goods may not be met, its cost will increase, the batch will disappear, the money paid will depreciate, and so on. The risk profile includes a certain list of elements that are important for further analysis. Each of them has a clear source or cause. In addition, they also have certain consequences, in some cases especially critical, in other situations not very significant. As a rule, all such situations are considered repeatedly throughout the implementation of a project. It should be borne in mind that there is a possibility that the occurrence of risks will be absolutely impossible to predict. The simplest example of this can be considered the sudden outbreak of hostilities, terrorist attacks, and so on. Naturally, it is impossible to predict them, therefore, if even the slightest probability of this exists, many companies automatically put a certain amount into the reserve. This helps to respond more adequately and with minimal losses to non-standard conditions, which in the end will benefit both one side of the agreements and the other.

What is a risk matrix

It is also called a risk map, as it looks like a grid on which there is certain information about all possible problems. They can either exist at the time of compilation or be predictable. The risk matrix is divided into three main categories: levels, likelihood and consequences. Each of these points will be discussed in more detail below. This toolEvaluation of possible problems in many companies is the main source of information that is taken into account when considering the possibility of implementing a particular project. As a rule, based on everything indicated in the matrix map, management is able to issue the most effective and reasonable solution that can suit both parties to the contract. That is, the employees of the company responsible for this tool must treat their own work as responsibly as possible, because their data will affect the entire development of the enterprise, its receipt of income, and so on. At the same time, if any indicators are deliberately underestimated and an adverse event leads to significant losses, they will also be liable, provided that all this could indeed be predicted.

Separation of risks by levels

All problems have some level of risk. So, there are 4 main varieties: low, moderate, high and extreme. The very first type implies an almost complete lack of action, especially if all the necessary instructions were given in advance. As a rule, it is enough to conduct a routine control check, making sure that employees really understand the situation and know how to respond to it. The second, moderate level is already more difficult. Usually, in order to cope with it, the knowledge of the head of a certain department is enough. You need to make sure that he understands the essence of the problem and is ready to take responsibility in case of failure. This is enough to ensure that the situation is resolved in the best way without much effort. The emergence of high-level risks is indeed already very important, and it is required to immediately draw the attention of senior management to the problem that has arisen. Chiefs among themselves will be able to quickly agree and make the right decision that can lead to minimization of losses. The latest, extreme level implies that you need to act right now, without any meetings, negotiations, and the like.

Separation of risks by probabilities

The definition of risk is also carried out according to the type of probability of its occurrence. There are five types: A, B, C, D and E. Category E is the type of risk that occurs extremely rarely. For this, certain conditions must be met, and the chance of this is taken into account as the least likely. Group D refers to those types of situations that are unlikely to occur. That is, everything that is possible in theory, but in practice is extremely rare, is included here. The next category is C. These are already risks that are likely to arise, since this happens with some regularity that can be approximated. Group B is considered the penultimate group. It includes situations that occur more often than not. The calculation of category A risks is very simple. You can give almost 100% chance that the problem will occur. According to a certain frequency of occurrence, the company will be able to respond in the right way, proactively eliminating possibleproblems or, if this is not possible, considering in advance the consequences of their occurrence.

Separation of risks by consequences

The risk and uncertainty of possible events should also be considered in terms of how critical they may be for the company. There are several basic categories of consequences, which in turn are further divided into three groups: by harm to he alth, by cost and effort required.

Consequence table:

Consequences	Harm he alth	Costs	Effort
Disastrous	The dead	Critical. Can't go on working	Critical outside help
Essential	Many casu alties	Serious	Serious outside help
Average	Serious medical help	High	With help
Small	First Aid	Average	On my own
Minor	No	Low	On my own

Detailed description is unnecessary here, since everything is clear from the table. We can only give a few examples. The smallest problemscan be considered an accidental breakdown of equipment that is not too necessary, which can be quickly and with minimal time and money replaced with another one. There are no casu alties here, the cost of the work is low and the staff can do everything that is needed with their own hands. But the most serious example, in which this risk characteristic reaches the “catastrophic” indicator, is already a global man-made accident in which many employees and other persons who have nothing to do with the enterprise died. Naturally, the costs in such a situation will be so incredible that it will most likely simply close.

Main Features

The risk matrix implies the preliminary and sequential implementation of a number of specific actions. The first thing to do is identification. That is, all possible risks must be listed and identified. The next step is hazard assessment. Within this paragraph, the previously selected probable problems are broken down by the degree of their threat to the project, life, he alth and finances of the company. After that, you should clearly consider possible actions that can be aimed at minimizing harm. That is, if possible, make sure that the problem does not arise in principle. As an option, consider a scheme of reactions that will need to be implemented if the situation does arise. The last and longest stage is execution control. If actions are implied that will reduce risk and uncertainty to zero or a minimum, then they need to be checked. If this is not possible, then it will be necessary to constantly orconduct additional checks at key stages of project implementation. They will be able to identify emerging problems in a timely manner.

Planning

This is the main process. It allows you to think through all possible options and probabilities in advance. There are no clearly defined criteria for how the plan should be drawn up. Each employee chooses the best type for himself and works according to his own vision of the problem, provided that there is no need to correlate the work permits received with other people. Approximately the same can be said about such a tool as the risk matrix. An example of such a plan should include such elements as general information, company data, features and description of the project in question, as well as the goals that were set. Then there are various sections that more accurately characterize the plan and its features. This includes methodology, organization, budget, regulations, reporting, monitoring, and so on.

Types of risks

All possible problems have several kinds of potential control. This is also important for the success of the risk matrix. The control calculation formula is quite simple, on the one hand, and on the other hand, extensive knowledge is required, often beyond the information available to ordinary employees. So, the risks are divided into those that cannot be controlled, it can be done partially or full control is available. The first category includes problems that are not related to the enterprise in any way. The second group includes everything thatalso does not apply to the enterprise, as well as some elements related to it. The last category includes technical, legal and similar issues directly related to the company.

Factors

Among other things, all non-standard situations have certain factors due to which the risk characterization becomes simpler and more understandable. It is thanks to these elements, along with other features and factors, that planning for the success of the project will be as easy as possible.

Factor table:

Factors	Description
Macroeconomics	Unstable economy
	State-level regulation
Law	Product section
	Changing the rules
	Change in taxes
Ecology	Technological disaster
	Natural disaster
Society	Terrorist act
	Strike
Country	Political instability
	Features of culture or religion
Members	Team problems
	Problems of founders
Technique	Forecasting errors
	Accident
Finance	Unstable currency market
	Insufficient funding

Here only the main elements are listed, which can be supplemented or changed, but their general essence will remain the same. As a rule, this is enough for a more or less detailed idea of at least a short list of possible risks. With these factors, you can start working.

Risk analysis and assessment

If you do not go into details, but consider the situation as a whole, you will notice that there is nothing globally complicated in risk assessment and analysis. It is enough to put a number of basic questions on a particular problem and it will be possible to immediately draw the appropriate conclusions. Thus, the analysis and calculation of risks must begin with whether it is possible to manage a single problem. If yes, then you need to develop a plan to minimize losses. If not, then you need to understand how critical the risk is. If it is too much, then it is necessary to immediately respond and stop the implementation of the project. If not, then you should just inform the management.

Responding

It has already been said above how to roughly evaluate and analyze problems. Of course, the information is mostly general in nature, but something can be considered in more detail only by being tied to a specific situation and company. Once the problem is known, it requiresreactions, because the definition of risk is only the initial stage. So, after there is an understanding of the situation, you should find out what specifically caused it to occur. Based on this, an approximate model of the dependence and influence of certain factors on the problem should be drawn up. Within the framework of it, an understanding of exactly how, what moment affects the final result is formed. Well, this already makes it possible to roughly estimate what actions are needed to change the initial indicators so that the likelihood of risk or its consequences are minimal.

Results

All of the above information allows you to form a basic plan that will cover most likely problems. It will allow you to more accurately determine their essence, principles, stages of occurrence, methods of solution, and so on. As experience is gained, the employee will be able to develop this planning system, making it more and more perfect. As a result, even the most improbable problems will be taken into account, which will allow the company to clearly understand all the risks associated with a particular project.