Risk assessments are essential to a risk management program. Risk assessments identify existing and emerging threats (either internal or external) to a company’s information systems, data, and operations; so the company can then respond accordingly.
Risk assessments can be time-consuming and arduous. Nonetheless, they must be conducted routinely to assure that you have adequate mitigation measures in place to protect your organization. Routine risk assessments are required for compliance with various standards and regulatory regulations.
Many of us might consider the terms “assessment” and “analysis” synonymous, which is valid in some cases. Subtle differences, however, do exist. The risk assessment identifies all of the potential risks. Risk analysis is specific to evaluating each individual risk and assigning a score to that risk. Together, assessment and analysis build the risk evaluation.
Risk evaluations can lead to a series of benefits such as avoiding data breaches, directing the need for a cybersecurity program, and driving cost/benefit analysis related to security risks, among others.
Qualitative Risk Assessments
A qualitative risk assessment focuses on measuring the effects of intangible or difficult-to-calculate risks. For instance, it’s difficult to put a number on damage to the company’s brand image or reputation.
Rather than using numerical estimates, qualitative risk assessments operate with descriptive and categorical treatments of risk information. For example, possible outcomes for each risk may be rated from harmless (low-risk) to severe (high risk).
Qualitative risk assessment is a subjective process based on the personal experiences of subject matter experts. The accuracy of qualitative risk assessments depends on the subjective rating system. The assessors must have experience in the field and knowledge of your business.
There should also be a well-defined system for recording the qualitative risk assessments and interpreting their results, to ease decision-making processes for stakeholders. After performing the qualitative risk analysis, you can decide the appropriate risk mitigation strategy: avoid, accept, reduce, or transfer the risk.
Quantitative Risk Assessments
Unlike qualitative risk assessments, a quantitative risk assessment focuses on numbers and metrics. Measurable data points are used to quantify the level of risk. The quantitative approach is preferable because metrics and risk levels can be measured on an ongoing basis.
These numbers are sometimes estimates, but they are still more objective than qualitative risk assessments. Stakeholder decision-making is improved because metrics provide more granular data to measure risk reduction over time or potential losses.
The Best Risk Evaluation Methodology for Your Business
There is no “best” risk assessment methodology. That said, the ISO 31000 standard provides a framework and methods for risk management processes. This is an international standard promulgated in 2009 by ISO (International Standards Organization) and is intended to guide organizations’ design, implementation, and development of risk management programs.
ISO 31000 describes a systematic and logical process for organizations to manage risk. Guidelines for identification, analysis, and assessment help organizations structure their risk management plans.
Depending on the situation and type of risk, some risk assessment methods will work better than others. It’s beneficial to understand and practice multiple approaches so you feel comfortable with how to use them.
Preliminary Risk Analysis (PRA)
This risk management methodology is used in the initial phase of risk evaluation. A risk matrix is made where the identified risks, causes, consequences, and risk categories are written in different columns. This helps risk assessors compare each risk’s potential frequency and severity and prioritize the risks accordingly.
The five whys method goes through multiple iterations of “why” to determine the cause of a risk. First, the problem is posed, and the assessor asks, “Why?” Once you have an answer, the assessor asks, “Why?” again to understand why that circumstance arose. Theoretically, after repeating five times, the assessor should reach the root cause of the problem, enabling the company to identify risk mitigation strategies.
Failure Mode and Effective Analysis (FMEA)
This risk management methodology identifies, classifies, and eliminates project failures before they occur. This methodology was based on a technique created by NASA, which was later applied to several industries.
First, identify all possible failures. Then classify each one based on frequency, severity, and detection. This helps develop a risk rating to rank them from least to most severe, so that risks can be addressed in a logical priority.
Fault Tree Analysis (FTA)
Fault tree analysis (FTA) is a graphical and mathematical tool used to analyze a machine or system’s potential for failure. It is a top-down approach that tries to reverse engineer the root causes of a potential failure. It is used as a part of the root cause analysis process.
FTA tries to model how failure propagates through a system. It creates a graphical model of how component failures lead to system-wide failures. With FTAs, reliability engineers can create well-defined systems with proper redundancies so that component failures do not always cascade into system-wide failures.
The graphical elements used to model FTA are called fault trees (FT) because they resemble the structure of a tree. When finished, the fault tree diagram helps depict how one or more small failure events could lead to a catastrophic failure, enabling organizations to implement preventive internal controls to mitigate risks.
Checklists are a tried and true method to verify a process has been performed correctly. A list of identified risks is created. After a process has been completed, each identified risk is checked and the corresponding task is completed. It is usually implemented for its ease and versatility, as it can be applied to any project.
Like the checklist, the what-if method is a risk assessment process that is easy to understand and implement. An assessor gathers a group of subject matter experts who are knowledgeable about the process under analysis. The team discusses a variety of what-if scenarios to brainstorm potential risks.
Minimize Risks with ZenGRC
ZenGRC’s compliance, risk management, and governance platform increase revenue and productivity.
ZenGRC simplifies risk management with comprehensive views of control environments, easy access to the information needed for risk assessment, and continuous compliance monitoring to address critical tasks at any time.
Our easy-to-use dashboards and templates show you what risks to mitigate, how to mitigate them, track workflows, collect and store documents, and much more!
To learn more about how ZenGRC can be used as part of a business plan to minimize or mitigate risks, contact us now for your free consultation and demonstration.