Risk analysis

Risk analysis helps you identify, sort, score and rank identified risks. Rather than just thinking about the obvious negatives, it can be useful to consider all areas of uncertainty to highlight the risks of success as well as failure.

Once you have a list of risks, each one is scored on the likelihood of it occurring and again on the impact it would have on the organisation if it did occur. Risks can be ranked by mapping them on a 3x3 matrix with a score of high, medium or low for both likelihood and impact.

This assessment is then used to prioritise the action needed to manage these risks, either by developing plans to prevent or reduce the likelihood of each risk occurring, or by developing contingency plans to reduce or pass on to a third party (eg an insurer) the negative impact if it was to occur. Alternatively, you can choose to live with the potential consequences.

Benefits

Risk analysis can help you make informed decisions and helps to prevent crisis and fire-fighting by ensuring that you are better prepared for possible future developments.

Limitations

Bear in mind that your ranked risks could be very subjective. Risk analysis can sometimes lure people into a false sense of security. No matter how prepared you think you may be, unexpected things will still happen. You won’t have time to manage all the risks you identify, so you’ll need to prioritise them.  You’ll also need to revisit your list of identified risks regularly to keep it relevant, as your external environment changes.

When to use it

You can use this tool to help chose between options when you reach decision time in your strategic planning process.

What are your experiences of using this tool? Share your triumphs and tribulations with our network members or write your own tips by commenting on this page.

More information about this tool is included in our guide Tools for Tomorrow.

Last updated at 17:54 Mon 12/Apr/10.

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How will this affect your organisation? Have you considered it during your strategic planning? Can you share any interesting relevant links?

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