What are the 7 ways of risk identification?

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Table of Contents Show

What is Risk Identification?
Risk Identification Process Steps
The First Phase of Risk Management Is Risk Identification
Ways to Identify Risks
What Is the Final Step in the Risk Identification Process?
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Even if you don’t realize it, you’re probably employing some kind of risk management in your organization. Over time, you develop procedures to make sure things don’t go wrong and put plans in place to reduce organizational impact if they do.

Creating a risk management plan is simply about formalizing that process and being able to devote your resources more effectively. The first step in this process, and one of the most important, is identifying your risks.

You will need to make a list of all the specific risks that could impact your organization. This can be a daunting task, especially for new businesses that don’t have years of experience and history to rely on. Fortunately, there are some strategies you can turn to for help:

1. Break down the big picture

When beginning the risk management process, identifying risks can be overwhelming. Begin with a high-level analysis. What are the most obvious things that could go wrong in your company or industry? These can be based on your business strategy and daily activities.

Risk is multi-faceted. There are many categories: competitive, financial, safety, operational, technological, legal, political, reputational, and so on. Break down your organization into each of these areas, and consider the individual weaknesses of each department.

Asking yourself insightful questions can reveal weaknesses in your organization that you may not have considered. For example, is your manufacturing process fully safe? Are all your employees properly trained? What would happen if you lost your biggest customer? If a serious incident occurred, would you know how to handle it and who was responsible? If you think of a question like this that you cannot answer, it represents a risk that needs to be better managed.

2. Be pessimistic

What is the worst thing that could happen to your organization? If there was a day where everything went wrong, what would that sequence of events look like? While being overly pessimistic may not be the best way to run a business, it’s incredibly helpful when identifying risks.

At this stage, it’s important to avoid overconfidence and thinking something “can’t” or “won’t” happen. Challenge all of your assumptions about potential risks, and be prepared for any or all of them to occur.

3. Consult an expert

You likely already have relationships with multiple people that could help you identify risks, such as your insurance broker, accountant, or financial advisor.

Insurance brokers know your claim history, which means they can provide insight on trends. If you experience the same type of losses multiple times, it suggests there’s a risk that is improperly managed. Brokers can also play a role in helping you to assess your business risks and recommending insurance coverage to help protect you against them in case they occur. If they do not provide this assessment service, they are probably able to recommend a good consultant who can.

Similarly, accountants and financial advisors will have insight on the types of payments you are repeatedly making. They can also advise and identify financial risk throughout the organization.

4. Conduct internal research

If you manage your own claims and losses or have employees that work closely with them, you can perform internal research to identify risks across the organization. With simple observation, you may be able to recognize areas where things are not being done correctly. Abnormally high costs in one department may also suggest an unmitigated risk.

With data and trend analysis, you can identify the root causes of occurrences. Incidents and near-misses are key indicators of problem areas that need to be addressed by the risk management team.

5. Conduct external research

Every industry has its own unique trends and common occurrences. Unless you are an organization in a brand new industry, you can learn a lot about identifying risks from those who have gone before you.

Professional organizations may be able to provide expert insight on the risks typically found in organizations similar to yours. They could access industry research or trend reports that will highlight common risks.

You can also pay attention to your competitors or companies similar to yours. Any losses, risk management successes, news releases, or even legal precedents can help you identify the same types of risks in your organization.

6. Seek employee feedback regularly

Everyone from the frontline staff to the CEO will have a different perspective of the organization and the risks they come across while performing their job. As such, employees are one of the most valuable resources in identifying risks.

All employees, especially key stakeholders, may have some insight on risks that they encounter in in day-to-day business practices that you would not have otherwise considered.

You can seek employee feedback anonymously, in one-on-one interviews, or in a group setting. Allowing anonymous incident reporting may increase the likelihood of response from employees who are worried about repercussions from speaking up, while group discussions may increase the amount of brainstorming and lead to a higher number of identified risks.

7. Analyze customer complaints

Just as asking employees can be valuable, customers may help in risk identification as well. What do customers most often complain about or what types of issues do they report? If there are multiple people complaining about the same process, it’s likely that there is an associated risk.

This strategy is most useful for organizations where customers visit a physical location, such as a storefront. However, even solely digital customers may provide valuable feedback that can help identify and mitigate against reputational risks.

8. Use models or software

There are many business and technological strategies that help identify and classify risks. Simulations, scenario role-playing, SWOT analysis, flowcharts, and risk mapping are just some of them. (Risk map blog)

There are also many organizations that provide information on identifying unique organizational risks. For example, ClearRisk offers this as just one of its many applications!

Congratulations! You’ve identified the risks facing your organization. But there are probably a lot of them: too many to handle at once. What next? You need to create a risk management plan that efficiently tackles the most risky scenarios. Check out our blog on what steps to take after identifying a risk.

For more information on identifying risks and how software can help, talk to one of our risk experts.

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Editor's Note: this blog post was originally published in October 2017 and has been updated for comprehensiveness.

Modern-day businesses face various risks to their day-to-day operations. For example, a company’s network may be hacked, compromising employee, and customer data. Natural disasters such as hurricanes, tornadoes, and wildfires can also impact an organization’s ability to operate. Ensuring the safety of a company and its employees is about more than being able to react quickly to a threat. Effective risk management involves preparing for a threat before it happens.

Professionals who are interested in learning how to identify and mitigate an organization’s risks are likely to find that completing an advanced education is prudent. An online Master of Science in Safety, Security, and Emergency Management is designed to provide the education and skills to be successful in this profession.

What is Risk Identification?

Risk identification is the process of identifying and assessing threats to an organization, its operations, and its workforce. For example, risk identification may include assessing IT security threats such as malware and ransomware, accidents, natural disasters, and other potentially harmful events that could disrupt business operations. Companies that develop robust risk management plans are likely to find they’re able to minimize the impact of threats, when and if they should occur.

Risk Identification Process Steps

There are five core steps within the risk identification and management process. These steps include risk identification, risk analysis, risk evaluation, risk treatment, and risk monitoring.

Risk Identification: The purpose of risk identification is to reveal what, where, when, why, and how something could affect a company’s ability to operate. For example, a business located in central California might include “the possibility of wildfire” as an event that could disrupt business operations.
Risk Analysis: This step involves establishing the probability that a risk event might occur and the potential outcome of each event. Using the California wildfire example, safety managers might assess how much rainfall has occurred in the past 12 months and the extent of damage the company could face should a fire occur.
Risk Evaluation: Risk evaluation compares the magnitude of each risk and ranks them according to prominence and consequence. For example, the effects of a possible wildfire may be weighed against the effects of a possible mudslide. Whichever event is determined to have a higher probability of happening and causing damage, it would rank higher.
Risk Treatment: Risk treatment is also referred to as Risk Response Planning. In this step, risk mitigation strategies, preventative care, and contingency plans are created based on the assessed value of each risk. Using the wildfire example, risk managers may choose to house additional network servers offsite, so business operations could still resume if an onsite server is damaged. The risk manager may also develop evacuation plans for employees.
Risk Monitoring: Risk management is a non-stop process that adapts and changes over time. Repeating and continually monitoring the processes can help assure maximum coverage of known and unknown risks.

The First Phase of Risk Management Is Risk Identification

Risk identification enables businesses to develop plans to minimize harmful events before they arise. The objective of this step is to identify all possible risks that could harm company operations, such as lawsuits, theft, technology breaches, business downturns, or even a Category 5 hurricane.

Safety management professionals must understand that risk identification is not a one-time process. Instead, the process should be rigorous, thoughtful, and ongoing.

Ways to Identify Risks

There are many ways to identify an organization’s risks, however, some of the more common examples include brainstorming, thinking pessimistically, and seeking employee feedback.

Brainstorming: Risk managers may find that brainstorming the probability of various catastrophic events with other company stakeholders, such as managers and certain C-level staff, can help identify new threats.
Thinking Pessimistically: Careers in safety management often entail planning for the worst while expecting the best. Although pessimism isn’t often encouraged in the workplace, taking time to ponder “what is the worst possible thing that could happen to the company” may be helpful in identifying risks.
Seek Employee Feedback: Upper-level management’s perspective of an organization’s risks can be starkly different from the perspective that employees hold. Employees may encounter new risks in their day-to-day activities that may not have otherwise been encountered. For example, insufficient training on a piece of operating equipment may be placing staff at risk of injury. As such, employees are an invaluable source of first-hand information.

What Is the Final Step in the Risk Identification Process?

As noted earlier, the final step in the risk identification process is to monitor and review risks, because some risks will always be present. Using the natural disaster example, businesses in Florida will always be at risk of a hurricane strike, where businesses in certain parts of Kansas will always be at risk of being struck by tornadoes.

Learn More

Professionals who wish to learn more about identifying and analyzing potential workplace hazards and risks should think about completing a relevant advanced education. Discover how the online Master of Science in Safety, Security, and Emergency Management at Eastern Kentucky University can help you take your safety management career to the next level.