Risk management

Evaluate business risks

Guide

Risk evaluation allows you to determine the importance of risks to the business. You can then decide to accept the specific risk or take action to prevent or minimise it.

How to evaluate risks to your business

First, you should consider all the types of risks your business may face - from strategic and compliance risks to financial and operational threats. Identify these risks and rank them in order to evaluate them.

You should rank the risks by considering the consequence and the likelihood of each. For many businesses, assessing consequence and likelihood as high, medium or low will suffice.

Evaluate these risks alongside:

  • your business plan - to determine which risks may affect your company's objectives
  • any legal requirements, costs and investor concerns - sometimes, the cost of reducing a potential risk may be so high that doing nothing makes more business sense

Tools to evaluate business risk

You can use several business tools to help evaluate risks. For example, you can create a risk map by plotting on it the significance and likelihood of the risk occurring. Each risk is rated on a scale of one to ten. If a risk is rated ten, this means a major concern to the company. One is the least important.

The map allows you to visualise risks in relation to each other and gauge their extent. This lets you plan what type of controls you should put in place to reduce the risks.

Importance of prioritising risks

Prioritising risks allows you to direct time and money toward the most important risks - those with the greatest potential to disrupt your business. By identifying which risks to focus on, you can put systems and controls in place to deal with any fallout. For example, define a decision process and escalation procedures that your company would follow if an event occurred.

See more on strategies to manage business risk and the importance of business continuity and crisis management.