How to Use a Risk Assessment Matrix to Minimize Risks [with Free Template]

What is a Risk Assessment Matrix and Why Is It Important?

A risk assessment is "a process to identify potential hazards and analyze what could happen if a hazard occurs" (Ready.gov). It aims to help you uncover potential risks your organization could encounter.

Knowing potential hazards makes it easier to either reduce the harm they cause or (ideally) prevent incidents altogether rather than deal with the consequences afterward.

This systematic process can uncover glaring risks of fraud, security gaps, or threats to staff well-being before it's too late. It can also mean the difference between a new project, policy, or process being successful or failing. One catastrophic risk that goes unnoticed could  immediately stop project or event.

Key Benefits of Using a Risk Assessment Matrix

Risk assessments cost time and money to conduct. So why should you bother? The benefits of a risk assessment far outweigh any inconvenience because they can help you avoid incidents, fines, lawsuits, and negative media attention.

Benefits of a risk assessment table include:

• Money saved: Picking up the pieces after a cyberattack, break-in, fire, or act of workplace violence is stressful and can cost thousands of dollars; a risk assessment costs far less.
• Fewer lawsuits: By preventing incidents, you won't have to deal with injured or disgruntled employees seeking legal action.
• Lower risk of non-compliance: Eliminate risks above and beyond compliance requirements to avoid penalties from regulatory bodies.
• Safe, happy employees: When employees see their safety and well-being as your top priority, they'll likely want to stick around, which leads to another benefit.
• Lower turnover rate
• Positive organizational reputation: Customers and clients want to do business with companies that operate safely, ethically, and fairly.

How to Create a Risk Assessment Matrix: Step-by-Step Guide

To conduct your risk assessment, begin by defining its scope.

Maybe you want to improve health and safety measures in the shipping warehouse. Or perhaps you want to identify risk areas in the finance department to better combat potential employee theft and fraud.

Whatever your objective, define it clearly. Conduct separate risk assessments for each goal, department, or project to keep things organized.

Note: Remember to modify the risk assessment forms to include details specific to your field. For example, a data security risk assessment might list hazard locations (e.g., internal or external).

Step 1: Identify Potential Hazards in Your Risk Assessment

Relating to your scope, brainstorm potential hazards. The list should be long and comprehensive. It could include anything from falls and burns, to theft and fraud, to pollution and societal damage, depending on the scope of your risk assessment.

Step 2: Calculate the Likelihood of Each Hazard

For each hazard, determine the likelihood it will occur, which can be measured as a probability (a 90 per cent chance) or as a frequency (twice a year).

Then, based on the likelihood, choose which bracket accurately describes the probability:

1. Unlikely (Low Probability of Occurrence)

An unlikely hazard is extremely rare. There is a less than 10 per cent chance that it will happen. For example, a blizzard is unlikely to occur at your office in Florida.

2. Seldom (Occasionally Occurs)

Seldom hazards  happen about 10 to 35 per cent of the time. For instance, you might determine financial kickbacks seldom happen because you work with very few external vendors.

3. Occasional (May Occur in Some Circumstances)

An occasional hazard will happen between 35 and 65 per cent of the time. For example, strains from repetitive motions could be occasional for your warehouse employees.

4. Likely (Highly Likely to Occur)

A likely hazard has a 65 to 90 per cent probability of occurring. For instance, employee theft is likely to happen in a retail store that sells high-priced goods.

5. Definite (Will Almost Certainly Occur)

These hazards will occur 90 to 100 per cent of the time. You can be nearly certain these will manifest. For example, a hurricane will definitely happen at your office in coastal Florida.

Step 3: Calculate the Consequences of Identified Risks

Next, in the same fashion as above, calculate potential loss using either quantitative measurements (dollars lost or spent), qualitative measurements (descriptive scale) or a mix of both.

Then, based on the magnitude of the consequences, choose which bracket accurately describes the losses.

1. Insignificant (Minimal Impact)

The consequences are insignificant and may cause a near-negligible amount of damage. This hazard poses no real threat. Examples: loss of $1K, no media coverage, and/or no bodily harm to employees or customers.

2. Marginal (Minor Impact)

The consequences are marginal and may cause only minor damage. This hazard is unlikely to have a major impact. Examples: loss of $10K, local media coverage, and/or minor bodily harm (e.g. cuts, scrapes, sprains, minor burns).

3. Moderate (Moderate Impact)

The consequences are moderate and may cause a sizeable amount of damage. This hazard cannot be overlooked. Examples: loss of $100K, regional media coverage and/or minor bodily harm.

4. Critical (Severe Impact)

The consequences are critical and may cause a great deal of damage. This hazard must be addressed quickly. Examples: loss of $1M, national media coverage, major bodily harm and/or police involvement.

5. Catastrophic (Severe, Long-Term Damage)

The consequences are catastrophic and may cause an unbearable amount of damage. This hazard is a top priority. Examples: loss of $10M+, international media coverage, extreme bodily harm and/or police involvement.

Step 4: Calculate Risk Ratings for Better Decision-Making

Assign each hazard with a corresponding risk rating, based on the likelihood and impact you've already calculated. For example, a hazard that is very likely to happen and will have major losses will receive a higher risk rating than one that's unlikely and will cause little harm.

Risk ratings are based on your own opinion and divided into four brackets. They are:

1. Low (Minimal Risk, Low Impact)

Low risks can be ignored or overlooked as they usually are not a significant threat. A definite hazard with insignificant consequences, such as stubbing your toe, may be low risk.

2. Medium (Moderate Risk, Manageable Impact)

Medium risks require reasonable steps for prevention but they’re not a priority. A likely hazard with marginal consequences, such as a small fall, may be a medium risk.

3. High (Significant Risk, High Impact)

High-level risks call for immediate action. An occasional hazard with critical consequences, such as a major vehicle crash, may be high risk. Examples: severe bodily harm (e.g. broken bones, third-degree burns, concussions), severe property damage, large data breach, national media coverage.

4. Extreme (Critical Risk, Immediate Action Required)

Extreme risks may cause significant damage, will definitely occur, or a mix of both. They're top priority. An extreme risk is an unlikely hazard with catastrophic consequences, such as an aircraft crash. Examples: death, property destruction, complete data breach.

Step 5: Creating an Action Plan to Mitigate Identified Risks

Your risk management action plan will outline steps to address each hazard, reduce its likelihood, and its impact, and respond if it occurs.

Depending on the severity of the hazard, you may wish to include notes about:

• Key team members (e.g. project manager, PR or Communications Director, subject matter expert) and their responsibilities if the hazard occurs
• Preventative measures
• A response plan for media and stakeholders (e.g. customers, vendors, clients, shareholders, board members)

Step 6: Input Data into the Risk Assessment Matrix

A risk assessment matrix simplifies the information from the risk assessment form, making it easier to pinpoint major threats in a single glance. This convenience makes it a critical tool in the risk management process, as it helps you make decisions faster and more efficiently.

Every risk assessment matrix has two axes: one that measures the consequence impact and another that measures likelihood.

To use a risk matrix, extract the data from the risk assessment form and plug it into the matrix accordingly. Simply find the square where the hazard's consequence rating and likelihood meet, and you can see the risk level it falls under.

Green: Low Risk (Safe, Monitor Regularly)

Yellow: Medium Risk (Manage and Monitor)

Orange: High Risk (Urgent Action Required)

Red: Extreme Risk (Immediate Action Required)

Fraud Risk Matrix Sample: How To Create A Risk Assessment Matrix

Anticipating internal and external fraud and theft is a crucial to any company’s antifraud efforts. Developing a risk assessment helps you identify hazards proactively so you can take precautionary measures or, if required, a fraud response plan.

Examples of hazards that may need to be addressed in your fraud risk assessment include:

• Asset misappropriation (check fraud, billing schemes, theft of cash)
• Fraudulent statements (misstatement of assets, holding books open)
• Corruption (kickbacks, bribery, extortion)
• Conflicts of interest
• Data theft
• IP/trade secret theft

RELATED: 41 Types of Fraud and How to Detect and Prevent Them

Health and Safety Risk Assessment Matrix: Key Examples

A health and safety risk assessment is crucial in industries like construction, manufacturing, or science labs, where work takes place in potentially dangerous environments. By using a safety risk assessment matrix, organizations can systematically evaluate and prioritize the risks associated with various tasks or processes. This matrix helps identify potential hazards, assess the likelihood and consequences of incidents, and determine appropriate preventive measures to reduce risks and ensure the safety of employees.

In a warehouse, for example, workers are at risk of many hazards such as:

• Severe or fatal injury from falling
• Repetitive strain injuries from manual handling
• Sprains and fractures from slips and trips
• Being crushed by falling objects
• Being hit by (or falling out of) lift trucks
• Crush injuries or cuts from large machinery
• Moving parts of a conveyor belt resulting in injury
• Exposure to hazardous substances

However, workplaces in every industry can benefit from health and safety risk assessments.

These assessments must also include things like workplace violence and other dangerous employee misconduct, infectious disease transmission, air quality, and ergonomic concerns.

Project Risk Assessment Matrix Example: How to Manage Project Risks

Before you kick off any project, event, or activity in your organization, conduct a thorough risk assessment to identify and assess potential hazards. Once these risks are better understood, your team can plan how best to prevent and mitigate the hazard.

Brainstorm hazards in several categories, including:

• Technological (data breach, service outage)
• Cost (funding falls through, go over budget)
• Contractual (modified requirements, contractor pulls out)
• Weather (tornado, wildfire)
• Environmental (oil spill, air pollution)
• People (illness, resignation)

Next Steps in Risk Management: How to Respond to and Mitigate Risks

Once you have finished your plan, determine how to action each step. What exactly needs to be done to mitigate or prevent the hazard? Who needs to complete these tasks? When should each task be completed?

Harm reduction is a second option. You can choose to "accept" the risk if the cost of countermeasures exceeds the estimated loss. To reduce the consequences of the risk, develop a mitigation plan to minimize the potential for harm.

The third option is to avoid the risk. For catastrophic disasters such as a workplace shooting or a fire, taking every possible step to prevent the risk from occurring at all is the best (and often only) course of action.

However you plan to deal with the risks, your assessment is an ongoing evaluation and must be reviewed regularly. Experts recommend updating your risk assessment matrix at least once a year, and perhaps more often depending on your unique situation.