Risks are potential problems that may or may not occur. Risk represents the probability of a negative event happening and the uncertainty in achieving desired results and goals, as it can hinder them.
- Risk a situation we want to avoid
- A risk is a predicted negative or unwanted event with some negative impact
- Every risk has some probability of occurring
- It is the uncertainty of achieving the desired results and goals because it can thwart them.
In essence, risk is the potential for a negative impact with a certain probability of occurring. Any risk that arises can have an undesirable effect on the organization's operations.
- Risk = Impact * Probability
The Impact and Severity of the Risk to the Organization
The impact and severity of risks to the organization vary in weight and significance. Each risk's seriousness must be assessed to determine which risks should be prioritized.
- Assessing the extent to which a risk will affect the organization's processes and the seriousness of its consequences is crucial.
- The severity of a risk's impact is derived from consequences and is evaluated through risk analysis.
Example: The impact of an internet outage is critical for an e-commerce solution provider, but only mild for a lawn care company
Probability of the Risk
Each risk has some probability of occurring. This is increased or decreased by a number of circumstances, some of which can be influenced, some not.
- Every process or asset is somehow vulnerable, and higher vulnerability means higher probability
- Existing hazards also increase the likelihood of the risk
- Organizations strive to reduce the vulnerabilities of their assets and processes to reduce the likelihood that a risk will occur
Negative Impacts of the Risk
Once a risk occurs, it means a problem for the organization's processes or assets:
- unavailability or loss of an process, company resources or other assets that leads to a stoppage of processes (production stoppage, worker injury or death, power failure, loss of information, destruction of a machine, destruction of a building, theft of funds, etc.)
- damage takes the form of injury, damage to health, environmental damage, accidents, damage or breach of data, damage to machinery, damage to buildings and the like and results in the limitation of processes or the functioning of assets
- misuse takes the form of, for example, misuse of information, theft of sensitive information and leads to fines, loss of market position or loss of reputation
Consequences of the Risk
- These core impacts directly or indirectly lead to financial loss either through lost revenue (e.g., due to customer churn, reputation damage) or increased costs (e.g., legal fees, operational disruptions, crisis management), or both.
- The consequence of the risk is a financial loss for the company
What types of Risks Threaten Companies
Every organization faces many different types of risks in different areas
- Financial risks, lack of funds
- Risks of various frauds, especially financial ones
- Work and workplace safety risks - health, injury or death
- Cybersecurity risks, Information security risks, Information Loss or Information Disclosure
- Reputational risks of damage to the good name in the market
- Competitive and market risks of being overtaken by competition
- Legal and compliance risks of litigation
- Various operational or project risks
- See here for a more detailed description of the most common risks.
Risk Sources
- Risks arise either in the processes or in the assets
- Various internal and external hazards, dangers and threats also cause risks
How to Manage Risks in a Company
Knowing the risks that can endanger your business must belong to the basic instincts of self-preservation and to the basic elements of the management of the organization. Aptien allows you to keep an overview of your risks in a simple way, including a link to their sources, and thanks to tasks and measures, it allows you to keep risks under control.