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How to identify risks? - SilverBulletRisk

https://silverbulletrisk.com/blog-how-to-identify-risks/

silverbulletrisk.com

How to identify risks? - SilverBulletRisk
Before starting any systematic risk management efforts, it is crucial to identify the risk that the company is exposed to. The aim of the risk identification process is to establish a catalogue of risks or so called "risk register". While this process usually is relatively intuitive there are few pitfalls that should be taken into consideration.

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Risk register

Risk register

Before you start risk management, it is important to identify the risks the company is exposed to.
Establish a catalogue of risks or a"risk register"

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Definition of a risk

A risk can be defined as an effect of uncertainty on the objective. It is a different outcome from what you expected and can address, create or result in opportunities and threats.

  • Risk is not an expected adverse development. If you expect the outcome, it is not a risk.
  • Risk is not a difficulty or a challenge if you are already aware that the situation exists now.

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Risk terminology

  • Threat – the source of the risk event that causes uncertainty.
  • Risk exposures – the amount that theoretically is at risk if the threat becomes a reality.
  • Risk – the collection of threats/causes and exposures that are treated and managed as a single whole.
  • Risk levels – risk level indicates how serious the risk is.

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When identifying risk

Identifying as many risks as possible often leads to not being able to manage it all properly.

  • First, identify the risks with the largest potential loss or financial impact. Then collect smaller risks together that can be managed as a group. Smaller risks have minor financial consequences.
  • Risk should not ‘overlap.’ It could lead to the wrong results.
  • Avoid too vague risks.
  • Lack of imagination. Major disasters are the unimaginable ones that have never happened before. You can always dismiss it later if rigorous analyses show that the risk is unrealistic.

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Risk identification techniques

One method is to ask the people with knowledge about the functioning of the organization, what could go wrong. It can be done using brainstorming, questionnaires, self-reporting etc. 
The second class of methods are more analytical and engineering methods. These methods are used to find hidden critical failure points that were missed at first. 

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SIMILAR ARTICLES & IDEAS:

Start With Small Bets

Risk should preferably be viewed as an experiment. This helps with testing innovation and reducing risk if things don't turn out as intended.

Imagine the Worst-Case Scenario

When you take the time to consider the downside possibilities, it will be less frightening if they happen. This will give you the confidence to stay the course.

Develop A Portfolio Of Options

If you have only considered one possibility, you should probably worry about it.

Find many possibilities for success, then you can be positive that at least some of them might work out.

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Scenario planning

It aims to define your critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses to give for each one of them. If you are aware of what could h...

How to use scenario planning

  1. Identify your driving forces: the big shifts in society, economics, technology and politics in the future and see how it will affect your company.
  2. Identify your critical uncertainties: pick 1-2 of the driving forces (with the most impact).
  3. Develop a range of plausible scenarios: Form a kind of matrix with your two critical uncertainties as axis and depending on what direction each of the uncertainties will take, you are now able to draw four possible scenarios for the future.
  4. Discuss the implications: discuss the various implications and impacts of each scenario and start to reconsider your strategy: set your mission and your goals while taking into account every scenario.

Some pitfalls to avoid

  • Don't fall into the trap is to be paralyzed by the multitude of possibilities. Keep it simple and focus on two major uncertainties.
  • Don't believe that you have to choose one particular scenario and build your strategy around it. Scenario planning is not about choosing just one option for the future but rather dealing with all of the possible outcomes to develop a strategy that will stand the test of all scenarios.
  • When developing your different scenarios, try to not look at the short term. Do not hesitate to look far ahead, anticipating what the market and competitors are going to be over the next years. 

Considering risk

It is not always possible to anticipate the effects of unexpected events that occur throughout the business cycle.

But those who routinely examine the way risks propagate across the entir...

Risk along the value chain

Most companies only examine the most direct risks facing a company and tend to neglect secondary risks that can have an even greater impact.

Companies need to learn to evaluate aftereffects that could weaken whole value chains.

Competitors

All differences in business models can create the potential for competitive risk exposure. This does not mean that a company should imitate its competitors, but that it should consider the risk when they have different strategies.