What is risk analysis?
Risk analysis is the process of determining and evaluating potential issues and concerns that could negatively impact the key projects and initiatives within an organization. This process is done so that companies can avoid or reduce these risks altogether.
When done correctly and efficiently, risk analysis is an important way to manage costs that can be associated with risks while also assisting in the decision-making process within an organization. Many companies choose to utilize security risk analysis software as a way to address any security risks before they occur.
Different types of risk analysis
In a risk analysis, you may be unsure of the types of risks, threats, or hazards to look out for.
Here are some types of risk analysis that vary by industry:
- Financial: Business failure, interest rate changes, fluctuations within the stock market
- Project: Going over budget, taking too long to reach a goal
- Natural: Weather, global pandemic, natural disaster, disease
- Political: Change in public opinion, government policy, taxes, or foreign influence
- Technical: Failure of hardware or software, advances in functionality, vulnerabilities in the infrastructure
Risk analysis benefits
No matter the industry, there are many benefits that conducting a risk analysis can provide. Some of these benefits include:
- Avoiding potential litigation
- Addressing any regulatory issues
- Being able to comply with new and old legislation
- Reducing exposure to risks and hazards
- Spotting any projects or tasks that may be at risk
- Making smart decisions regarding projects, tasks, or spending
- Effective communication across all departments
When to conduct a risk analysis
Conducting a risk analysis can be helpful in a variety of situations. Consider carrying out a risk analysis:
- When new projects are being planned and developed, which can help teams anticipate possible problems
- When deciding if a new project is worth moving forward with or not
- When making improvements to safety and security measures within the workplace
- When preparing for specific events, like a natural disaster, equipment or technology failure, staff shortage, or theft
- When anticipating a change in the industry, like an update to a specific government policy or new competitors joining the market
How to conduct a risk analysis
When carrying out your own risk analysis, here are the five steps you should consider following:
- Identify hazards and any potential risks. This is when to evaluate the IT system and other parts of the organization. This can pinpoint if there are risks to a company’s data, hardware, software, or employees.
- Analyze any risks found. Once risks are identified, they should be analyzed to determine the likelihood that each of the risks could occur and the consequences associated with each risk that could happen if they do occur. Be sure to document any and all findings.
- Develop a risk management plan. Utilize the analysis to come up with recommendations and a plan of action that an organization can put in place to avoid or mitigate such risks.
- Implement a risk management plan. Once the plan is ready, put it to work within a company to reduce the likelihood of the risks occurring. It should start with the highest priority risk and work its way down.
- Continue to monitor risks. Risk analysis is an ongoing institution within an organization, as new risk can become evident at any time.
Qualitative risk analysis vs quantitative risk analysis
Qualitative risk analysis occurs when risks are prioritized based on further analysis or action. The assessor will determine the likelihood of each risk occuring and then proceed to rate its impact on a project. The rating system is typically from zero to one. If there’s a 50% chance a risk will occur, its score is 0.5. Additionally, the risk is weighed on an impact scale, from one to five, with five being the highest impact on a project.
Quantitative risk analysis is a statistical examination of the effect of each risk on the overall project. This analysis helps team leaders and project managers make decisions with greater certainty and supports the process of controlling and mitigating all risks. It works to count all potential outcomes for the project and determines the likelihood of still meeting specific project objectives.
Mara Calvello
Mara Calvello is a Content and Communications Manager at G2. She received her Bachelor of Arts degree from Elmhurst College (now Elmhurst University). Mara writes customer marketing content, while also focusing on social media and communications for G2. She previously wrote content to support our G2 Tea newsletter, as well as categories on artificial intelligence, natural language understanding (NLU), AI code generation, synthetic data, and more. In her spare time, she's out exploring with her rescue dog Zeke or enjoying a good book.
