Identifying risk has become a standard operating procedure for businesses that want to remain proactively protective of their interests. The question for many business leaders often comes down to understanding the various ways available to identify risk.
What Is Risk?
In business, there will always be a certain degree of risk that any organization must face to achieve its goals. At the essence, risk is a fundamental requirement for growth, development, profit and prosperity. In a broad range of nearly every business industry, including healthcare, housing, energy, auto, finance, accounting, technology and supply chain, effectively managed risks actually provide pathways to success. But like any path, you need to know all the divots, detours and dangers along the way.
Even though risks are a part of doing business, we have to find ways to identify and manage those risks swiftly and effectively since they can often develop out of nowhere, creating the possibility for greater risks and damages. It is crucial to find ways to manage risks with the goal of minimizing their threats and maximizing their potential.
Risks come from a variety of sources, which might include the following:
- Uncertainties in financial markets
- Threats associated with project failures at any phase, which includes design, development, production or sustainment of life cycles
- Legal liabilities
- Credit risk
- Accidents due to natural or man-made disasters
- Deliberate attacks from an adversary or cybercriminal
- Events that occur due to uncertain or unpredictable root causes
To help you better understand various risks, there is a set of international standards for information security that can help. Together, the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) create and publish the ISO 270000 standards cooperatively for better guidance.
What Do the Terms Risk Assessment, Risk Management and Risk Analysis Mean?
It can become confusing trying to sift through the different terms surrounding the identification of risk, such as Risk, Risk Management, Risk Assessment and Risk Analysis. If you are trying to distinguish the finer meaning of each risk-associated term and how it may apply to your business, keep reading to get a firmer grasp.
“The purpose of risk management is not to change the future, not to explain the past.” -Dan Borge, author of The Book of Risk.
Risk management involves the identification, analysis, evaluation, and prioritization of risks. This field allows you to treat loss exposures, monitor risk control and financial resources in order to minimize any possible adverse effects of potential loss. Further, a solid risk management strategy gives you the ability to maximize the realization of available opportunities to avoid risk.
Further, risk management dictates that risk must be proportionate to the complexity and type of organization involved, which is often where enterprise risk management (ERM) becomes an invaluable tool. ERM is an integrated approach for managing risk across all sectors and departments of an organization, along with any extended networks.
Risk assessment helps you determine potential risks and mishaps, their likelihood of happening and possible consequences, and the tolerances for such events. Performing a risk assessment involves processes and technologies that help to identify, evaluate and report on any risk-related concerns. According to NIST 800-30, risk assessment is a “key component” of the risk management process and is primarily focused on the identification and analysis phases of risk management.
Following are two parts of this crucial phase of risk management:
- Identify and analyze possible future events that negatively impact assets individuals and the operational environment.
- Make judgments on the ability to reasonably tolerate risk, based on risk analysis while considering all possible influencing factors.
Essentially, risk assessment is a key part of the broader spectrum of the risk management strategy, introducing control measures to help eliminate or reduce any potential risk-related consequences.
Risk analysis is the crucial evaluation component within the broader risk assessment process. Risk analysis determines the significance of any identified risk factors discovered in the risk assessment process and provides a quantification of risk, such as when an auditor calculates the probability and magnitude of loss, based on certain risks.
A risk analysis typically begins by identifying anything that could go wrong before weighing any possible negative events against a standard probability metric. Together, these steps help measure the likelihood that such an event is likely to occur. Additionally, and just as importantly, risk analysis attempts to estimate the extent of impact that might occur if a certain event happens.
Do You Feel Confident About Your Organization’s Risk Management Strategy?
Are you confident that your risk management strategy is sound? Do you worry that there are risk factors that you are missing during the risk assessment and risk analysis phases of risk management? Our team at I.S. Partners, LLC. can help you get up to speed on any lurking risks to help you find ways to prevent and mitigate them.