Guide

Risk management

Evaluate business risks

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.

Once you have identified risks, you can rank them in order to evaluate them, This can be done by considering the consequence and  likelihood of each risk. For many businesses,  assessing consequence and likelihood as high, medium or low will suffice.

These can then be compared with your business plan to determine which risks may affect your objectives. You should then evaluate in the light of 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

There are some tools you can use to help evaluate risks. You can plot on a risk map 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 will let you plan what type of controls should be put in place to reduce the risks. See example FIRM risk scorecard to determine the level of risk you are evaluating

Prioritising risks allows you to direct time and money toward the most important risks. You can put systems and controls in place to deal with the outcomes of an event. This could involve defining a decision process and escalation procedures that your company would follow if an event occurred.