Definition of Risk Impact
- Risk impact is the direct effect or consequence of a risk when it materializes.
- The impact directly affects an organization in terms of operations, processes, resources, reputation, or other assets.
- Typical impacts include loss or destruction of assets, disruptions, unavailability, interruption of processes, injuries, violations, contamination, destruction, or damage.
- Impacts are categorized using impact levels (e.g., low, medium, high, and critical) based on their severity.
- Key Point: Impact refers to what happens as a direct result of a risk event. It does not necessarily reflect financial outcomes but rather the operational or strategic damage caused.
Examples of Risk Impacts
- Business Operations: Disruption or interruption of operations, processes, business activities, production, or service delivery.
- Cyberattack: In the event of a cyberattack, the impact could include loss or damage to data, data breaches, interruptions in IT system functionality, or erosion of customer trust.
- Supply Chain: In the event of supply chain disruptions, impacts may include production delays, inventory shortages, or loss of customer orders and clients.
- Compliance Violations: Failure to meet legal and regulatory requirements can lead to operational restrictions and increased scrutiny from regulatory bodies.
- Health and Safety (HSE): Worker injuries, workplace accidents, or fatalities.
Most common risk impacts in SMEs are
- Disruption of operations
- Damage to reputation
- Loss of data
- Unavailability of critical systems
- Interruption of supply chain
- Reduction in productivity
- Failure of equipment
- Compromise of sensitive information
- Deterioration of customer trust
- Violation of regulatory compliance
- Breach of security protocols
- Injury to personnel
- Contamination of products
- Destruction of property
- Degradation of service quality
Appropriate Words to Describe the Impact of a Risk
- Disruption of
- Damage to
- Loss of
- Unavailability of
- Interruption of
- Reduction in
- Failure of
- Compromise of
- Deterioration of
- Violation of
- Breach of
- Injury to
- Contamination of
- Destruction of
- Degradation of
- Decreased
How to Enter Risk Impacts into the Risk Register
- The impact of a risk should be part of the risk's name so that it is immediately clear what the specific risk will cause.
Steps to Enter Risk Impact:
- Open the risk register.
- Enter the risk impact into its name or description (Risk Statement).
Difference between Impacts and Consequences of Risks
- Impact is the primary effect of risk, that is, negative events on company processes and resources
- A consequence is a secondary effect of an impact that directly or indirectly leads to financial loss either
What Are Risk Consequences
- A consequence is a secondary effect of an impact that directly or indirectly leads to financial loss, either through lost revenue (e.g., customer attrition, reputational damage) or increased costs (e.g., legal fees, operational disruptions, crisis management), or both.
- The consequence of risk is therefore an expressible financial loss to the company.
Financial Burden, Financial Loss
- Reduced profitability due to unexpected costs or loss of revenue.
- Increased operational expenses related to risk management, insurance, or enforcement.
- Potential insolvency or cash flow issues resulting from financial setbacks.
Costs of Crisis Management and Recovery
- Significant time, effort, and resources required to manage and recover from a crisis.
- Disruption of normal business operations during the crisis response phase.
- Potential loss of clients and partners while the business recovers from the crisis.
Legal and Regulatory Consequences
- Fines, penalties, or lawsuits arising from non-compliance with laws or regulations.
- Increased legal costs associated with defending claims or resolving disputes.
- Disruption of business activities due to legal or regulatory investigations.
Insurance Costs
- Higher premiums or limited insurance options due to previous claims or risk exposure.
- Potential underinsurance, leaving the business vulnerable to significant unforeseen expenses.
- Challenges in obtaining insurance for emerging or specialized risks, leading to gaps in coverage.