Risk Assessment – Goals and Procedures

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In order to understand the goal of risk assessment, it is important to understand what the term ‘risk’ in risk management refers to. In risk management, the term ‘risk’ is defined as the events related to a hazard along with the chances of its occurrence.

Hazardous events x probability = Risk

In risk management, it is important to objectively define risk so that numerous individuals can work on it with the same data and can come up with more or less the same plans to avoid it from happening. This is where the process of risk assessment comes in. Through the process of risk assessment it is possible to analyze the potential losses that can occur as a result of accepting a risky situation. Risk assessment therefore takes into account the losses that can occur, the data regarding these risky situations, implementation of a proper strategy to counter it and finally producing strategic judgments and plans regarding the situation.

The following are the basic goals of risk assessment:

-          Identification of situations which are potentially hazardous

-          To implement measures of reckoning the likelihood of a particular hazardous situation occurring and also the uncertainty in the measures. In other words, the uncertainty or the loopholes in these measurements are also made a part of the process.

-          Provision of alternative measures to reduce or counter the risk.

-          Evaluate the potential of the provided measures to counter risk.

-          Put forward a proper strategic solution for the risk management decision to base on it.

How is Risk Estimated?

There are a couple of ways through which risk can be evaluated. The following are some of the most popular ways of estimating risk:

-          Through Modeling

-          Through analyzing the historical data

-          Through comparison with previous similar situations

-          Through classifying the different aspects of a system. Some categories for example can be events, faults, hazards, etc.

-          Through comparison with the most widely used methodologies

-          Through combining more than one of these ways together.

Further reading: Corporate Governance | Audit | Performance Improvement

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