What Are Risk Assessment Methodologies?

Risk is inescapable. However careful your company might be, it cannot experience growth without accepting a certain amount of risk.

The key to a successful risk management program is to prepare for risk as thoroughly and efficiently as possible. This includes regular risk assessments to understand which risks should be prioritized and how best to prevent any potential losses. Risk assessments can be conducted for cybersecurity, health and safety, financial reporting, or any other area where risk might occur.

Risk management and risk assessment are two separate concepts. Risk management is a broader discipline that seeks to identify, analyze, and mitigate risk throughout your entire organization. A risk assessment is an important component of your overall risk management program. In a risk assessment, you look closely at each risk and determine how best to avoid either the risk itself or the loss that each risk could cause.

Most experts recommend that companies conduct risk assessments at least annually. Your annual assessment should be scheduled in advance and documented thoroughly so that everyone in your company knows when the assessment was last performed and what results were discovered.

If your organization is due for a risk assessment, keep reading to learn more about the different methodologies and the benefits your company stands to gain.

What Are the Benefits to Risk Assessment?

By adding scheduled risk assessments to your risk management program, you can:

Enhance Your Security

The most obvious benefit of a risk assessment is that you can develop stronger safeguards against risk. Preventing a risk is easier when you know exactly what you’re facing, and an assessment can provide you with important data that will help you determine your level of risk, build strong controls, and assign risk appropriately throughout your company.

Save Money

Regular risk assessments can intercept potential disruptions to business operations, compliance failures, and other issues that might cost the company money. Risk assessments can also help with risk mitigation efforts which will provide a clear path forward in the event of a crisis. A risk assessment can also help create a cost-benefit analysis to assure that your budget is allocated wisely.

Spread Awareness

Integrating risk assessments into your company culture is a great way to make sure that everyone in your organization understands what risks you face and how those risks can be prevented. Educating your staff is a key component of any risk management program.

Grow Your Company

Assessing your risks can help you create a sensible plan for future growth that balances risk with opportunity. All growth opportunities will come with some amount of risk; an initial risk analysis will bring nuance to your decision-making process and allow you to move forward with confidence.

Common Risk Assessment Methodologies

Risk assessment methodologies differ both by the environment in which they are used and the kind of information they’re designed to acquire. Keep in mind that you can use different types of risk assessment in different areas of your company, or several at once depending on what you’re hoping to learn.

Most risk assessments can be divided broadly into two categories: quantitative and qualitative.

Quantitative

A quantitative risk assessment deals with data, numbers, and objective facts; it tries to pinpoint the percentage chance of a risk happening, or the dollar value of potential harm.

The numerical data provided by a quantitative analysis is frequently easier to communicate to other departments throughout your organization, including stockholders and board numbers. Quantitative approaches can also help you determine quickly and easily whether your company’s risk management efforts have progressed or declined over time.

Qualitative

Qualitative risk assessments rely more on experiential evidence gathered from those who have witnessed your company’s risk control efforts firsthand, as well as an assessor’s expertise. Rather than expressing risk in numerical terms, this assessment might rank a risk along a scale such as low, medium, or high.

This kind of assessment can be helpful in determining which of your identified risks have the most potential for harm, as well as examining your controls to see if they are functioning as intended.

Once you have determined whether a quantitative or qualitative assessment will best meet your needs, you have the following risk assessment methods to choose from:

Generic

As the name suggests, a generic risk assessment is a broad format that can be adapted to a variety of different situations and departments. The benefit of a generic risk assessment is its wide range of use; the drawback is that the results are often generic as well. Companies will often use a generic risk assessment as a template, or as an initial information-gathering tool used before moving on to more focused assessments.

Site-Specific

This kind of assessment is tailored to particular environments and situations, which makes it a useful second step after an initial generic assessment. Site-specific assessments are designed and conducted by taking into account the risk factors of a particular area or project. This is particularly helpful as your company grows and changes, which will usually result in changes to your organization’s environments.

Dynamic

A dynamic assessment differs from other assessments in the amount of time it takes to perform. The previous two examples can be time-consuming; a dynamic assessment is performed in the moment after a risk event, to determine quickly what can be done to stop the damage and mitigate future loss.

Regardless of the methodology (or combinations of methodologies) that you choose, there will be some key steps used every time. The risk assessment process includes:

1. Identify hazards with a risk evaluation
2. Determine potential harm
3. Design control measures
4. Record your results
5. Monitor and revise when needed

Using this basic framework, you can then design a risk assessment approach that is appropriate for the particular environment and time frame at hand.

Integrate ZenGRC into Your Risk Management Plan

Creating a successful risk management system is a challenge for most companies. With so many moving pieces it’s difficult to get a clear view of every risk that could affect your organization. If you’re still using outdated methods like spreadsheets to communicate risk throughout your company, it may be time for an upgrade.

ZenGRC is a single source of truth: an integrated software solution that allows you to manage risk throughout your entire organization. This program allows you to see your entire risk management and regulatory compliance programs at a glance, providing automation of your security controls and making it easier than ever to mitigate loss.

Schedule a demo today to learn more about how ZenGRC can help design a risk management process that works for you.