What are Risk Impacts and Consequences

Last updated: 2024-12-15

What is Risk Impact

Definition of risk impacts

  • The risk impact refers to the direct effect or resulting damage of the risk if it occurs. It represents how the organization is affected in terms of operations, processes, assets, reputation, or resources.
  • Typical impact is loss, unavailability disruption, interruption, injury, violation, contamination, destruction,  damage,  etc.
  • Impacts are categorized based on their severity, as you've outlined in the levels of impact (low, medium, high, and critical).
  • Key Point: Impact refers to what happens as a direct result of the risk event. It doesn’t necessarily reflect the financial outcomes, but rather the operational or strategic harm caused.

Examples of risk impacts

  • Company Operations: Disruption of operations, processes, Interruptions to business operations such a interruption of a production or service delivery.
  • CyberFor a cyberattack, the impact could be loss or damage of data, data breaches, compromise sensitive information, interruption of IT systems, or damage to customer trust
  • Supply Chain: For a supply chain disruption, the impact could be delays in production, inventory shortages, or loss of customers or customer orders.
  • Compliance Violations: Failing to adhere to legal and regulatory requirements can result in operational restrictions and increased scrutiny from regulatory bodies.
  • OSH, Health and safety: worker injury, occupational accident, death
what are risk impacts and consequences

Most common risk impacts in SMEs are

  1. Disruption of operations
  2. Damage to reputation
  3. Loss of data
  4. Unavailability of critical systems
  5. Interruption of supply chain
  6. Reduction in productivity
  7. Failure of equipment
  8. Compromise of sensitive information
  9. Deterioration of customer trust
  10. Violation of regulatory compliance
  11. Breach of security protocols
  12. Injury to personnel
  13. Contamination of products
  14. Destruction of property
  15. 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:

  1. Open the risk register.
  2. Enter the risk impact into its name or description (Risk Statement).
what is risk impact and consequence

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

Risk Consequences

Financial Strain

  • Reduced profitability due to unexpected costs or loss of revenue.
  • Increased operational costs from risk management, insurance, or recovery efforts.
  • Potential insolvency or cash flow issues due to financial setbacks.

Crisis Management and Recovery Costs

  • Significant time, effort, and resources required to manage and recover from crises.
  • Disruption of normal business operations during the crisis resolution phase.
  • Potential loss of clients and partners while the business deals with 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

  • Increased premiums or limited insurance options due to prior claims or risk exposure.
  • Potential underinsurance, leaving the business vulnerable to large unforeseen costs.
  • Difficulty in obtaining insurance for emerging or niche risks, leading to gaps in coverage.