How do you prioritize risks identified during a risk assessment ?

1. Determine the likelihood of each risk occurring: Assess the probability of each risk event happening based on historical data, expert judgment, and other relevant information.

2. Evaluate the potential impact of each risk: Consider the consequences of each risk event on the project, organization, or stakeholders. This includes financial, operational, reputational, and legal implications.

3. Rank risks based on severity: Prioritize risks based on their combined likelihood and impact. Risks that are both highly likely and have a significant impact should be given higher priority.

4. Consider risk interdependencies: Some risks may be interconnected or have a cascading effect on other risks. Take into account how one risk event could trigger or exacerbate other risks.

5. Align with organizational objectives: Consider how each risk aligns with the overall goals and objectives of the organization. Prioritize risks that have the potential to significantly impact the achievement of these objectives.

6. Involve stakeholders: Consult with key stakeholders to gain their perspective on the importance of each risk. Consider their input when prioritizing risks.

7. Develop a risk response plan: Once risks have been prioritized, develop a plan to address and mitigate the most critical risks. Allocate resources and assign responsibilities to manage these risks effectively.

8. Monitor and review: Regularly review and update the risk assessment to ensure that risks are being effectively managed and new risks are identified and addressed in a timely manner.

Risk Prioritization Matrix

A risk prioritization matrix is a tool used to assess and prioritize risks based on their potential impact and likelihood. It involves the following steps:

1. Define Impact and Likelihood Scales:

- Establish scales for both impact (severity of consequences) and likelihood (probability of occurrence).
- Common scales range from 1 (low) to 5 (high).

2. Assign Values to Risks:

- Assess each risk and assign it a value for both impact and likelihood based on the defined scales.

3. Plot Risks on the Matrix:

- Create a matrix with impact on the vertical axis and likelihood on the horizontal axis.
- Plot each risk on the matrix using the assigned values.

4. Prioritize Risks:

- Risks in the upper-right quadrant (high impact, high likelihood) are considered high priority.
- Risks in the other quadrants can be categorized as:
- Medium priority: Moderate impact and likelihood
- Low priority: Low impact and likelihood

Risk Prioritization Techniques

In addition to the matrix method, other techniques can be used to prioritize risks:

- Subjective Judgment: Based on the experience and expertise of the team.
- Analytical Methods: Using statistical data or models to calculate risk probability and impact.
- Multi-Criteria Decision Analysis: Considering multiple factors, such as impact, likelihood, stakeholder preferences, and resources.

Factors to Consider:

When prioritizing risks, consider the following factors:

- Business Objectives: The impact of the risk on the organization's goals.
- Legal and Regulatory Compliance: The risk's potential to violate laws or regulations.
- Reputation and Image: The impact of the risk on the organization's public perception.
- Financial Impact: The potential financial losses or expenses associated with the risk.
- Operational Disruptions: The risk's potential to disrupt business operations.