What is Risk analysis?
Risk analysis is the name given to a technique which is used to identify and assess any factors which may jeopardise the success of a business. The method also assesses the chances of a risk occurring and the likely outcome of the risk if it did indeed occur. This analysis should be taken into account when an organisation is deciding how to prevent these risks from occurring or whether these risks are acceptable.
What is Risk analysis like?
Risk Analysis is like shining a torch in a dark room. You know that there could be a lot of things in the room which may potentially be able to hurt you. The risks you face may differ depending on which room you are in (or what field of business you operate in)! If the room was kept completely black, you could easily walk into something, but switch a torch on and look around you. Most people would make a note of the biggest risks in the room, so that they could attempt to avoid them. Being able to see what is there (even if you can’t see it clearly) can help you to prevent yourself from getting hurt.
What is the purpose of Risk analysis?
The purpose of risk analysis is to attempt to quantify and classify the risks that an organisation faces. Looking at a variety of risks which have already been identified can help a company to consider which risks are most likely to occur, and which risks would have the most serious consequences. Analysis may show that some risks require a lot action to prevent them from occurring or to lessen their impact, whereas other risks may be deemed to be acceptable, or the probability of them occurring may be decided to be too low to be worth spending money on preventing.
What are the different types of Risk analysis?
Quantitative risk analysis – this type of analysis is done using known data which is available from previous internal or external sources. It is the best way to calculate accurate probability of risk.
Qualitative risk analysis – this type of analysis is carried out using personal judgement and previous experience to act as a form of guidance. These analyses are more subjective.
What’s involved with conducting a Risk analysis?
In order to conduct a risk analysis, you must first define the system which the risk is part of, or the context which the risk must be considered in. Then you should identify the risks or hazards which are present as part of this system. After this, the risk can be analysed for probability and likely consequences.
Where does Risk analysis fit into the risk management process?
A risk analysis must be carried out after the risk has been identified, but before steps are taken to counter that risk.
How does a Risk analysis impact on managing organisational risk?
A risk analysis can have an important impact on the processes which are put into place to manage organisational risk. Without an analysis of the risks which have been identified, it would be hard to gauge the likelihood of each risk occurring, or the consequences which could follow on from each risk. Considering these things can help an organisation to find the most appropriate ways to deal with them.
What terms are used in Risk analysis?
Risk – a risk is a problem which may occur
Probability – the likelihood of the risk occurring
Consequence – this is an outcome which may be produced by the risk