Risk assessment is a part of the risk management process. It is the process of evaluating potential losses pertaining to a potential hazard. They are evaluated taking into consideration a set of predetermined rules, facts about the situation, knowledge about the primary process involved and finally concluded with a judgment about the process.
In this particular process, risk is defined as the basic product of a hazard and the probability of its occurrence. This means that probability of occurrence multiplied by the hazard is equal to ‘risk’. It should be remembered that in order to define the risk, it is important that the value of ‘probability’ and ‘hazard’ must be known.
The following are the four basic steps and without them the process of risk assessment is incomplete:
- Identifying the hazard and its components.
- Assessing the relationship between the adverse effects of a risk and the exposure to that risk.
- Evaluating the exposure; taking into consideration the conditions which can lead to the risk.
- The final step is to characterize the risk. In this step, the nature of the risk, its effects, the chances of occurrence of these effects and evaluating the strength of these effects. All these are usually found out using probability and other statistical data.
Risk assessment is carried out in order to make proper grounds for a decision. It is important to analyze the hazards or risks related to a change being made in the company or a new decision that has been taken. To reduce risk, it is important to carry out the risk assessment process. Also, with this process organizations become aware of the different adverse situations that can occur. Therefore, most of the established organizations base their decisions on the risk assessment reports to make sure they don’t end up in a hazardous situation.