Risk analysis has become an integral part of every organization. There a multitude of risk analysis methods to use today. However, why do we need to perform risk analysis?
A lot of small and medium-sized businesses are facing cyberattacks. They are more at risk than larger enterprises because their security measures are often weaker. Small and medium-sized enterprises believe that their size of operations makes them less of a target. Still, cyber attackers find it a lot easier to find vulnerabilities and launch attacks on their business than the larger organizations.
A recent study stated that 78% of all participating companies in the United States survey faced a cyber attack in the last year, out of which a majority were smaller sized companies. A stable way of understanding and managing risks to companies is to invest in risk management tools and practices to protect their company’s most valuable assets. Risk analysis is a big part of the risk management strategy that needs to be implemented for the risk management plan to work. The article discusses what risk analysis is and the most popular methods of conducting a risk analysis for companies.
What is Risk Analysis?
There are many types of risks and threats that companies of all sizes need to prepare measures for. These risks can arise from malpractices, lack of optimal efficiency in operations, cyber attacks, exposed vulnerabilities in the firewall, using unsafe applications, and more. Risk analysis is a means by which organizations can identify these vulnerabilities, threats, and risks to their company and then create strategies to protect themselves against these risks.
Risk analysis deals with identifying risks and potential threats to a company’s operations and processes and analyzing them to measure their severity of impact and likelihood of occurrence. A risk analysis process typically centers around a few fundamental steps. These steps are common to the different risk analysis methods and are applied in different forms using various means.
Key Steps Involved in the Risk Analysis Method
The most basic and skeletal steps that are involved in any method used to conduct risk analysis are:
- Identification of threats, vulnerabilities, and uncertainties
- Understanding the impact of these threats, vulnerabilities, and uncertainties
- Creating or using a model for risk analysis
- Sampling of the model to understand the threats, vulnerabilities, and uncertainties better
- Analyzing the results obtained from the above steps
- Implementing a risk management plan to manage these threats, vulnerabilities, and uncertainties based on the results of the analysis
Risk Analysis Methods
There are two types of risk analysis and assessments conducted in organizations. They are qualitative risk analysis methods and quantitative methods of risk analysis. The qualitative methods are widely used means for companies to assess and monitor day-to-day risks faced by them. This makes them widely used approaches. The different risk analysis methods are used based on the type of organization, type of project, and more.
Risk analysis and management experts are usually the ones who know what risk analysis methods are best suited for specific projects. Using the right method is also important because it can determine the project’s success rate. Some of the most commonly used and popular risk analysis methods are listed below:
- Delphi Technique of Risk Analysis
- Decision Tree Analysis
- Probability and Consequence Matrix
- SWIFT Analysis
- Bow-Tie Analysis
Delphi Technique for Risk Analysis
The Delphi technique for risk analysis is quite similar to a brainstorming session. The concerned teams must work with risk analysts and other security specialists to come up with different potential threats and vulnerabilities to their organization or project. The crucial point of what makes the Delphi technique works is that it uses risk professionals and experts. Without utilizing the expert skills, it becomes no different from a regular brainstorming session and will not yield very successful results.
After the brainstorming session is complete, risk analysts and team members work together to evaluate their identified risks and analyze them. All the experts make their lists of potential threats and their evaluations individually and then compare them to create a complete risk register to document all the risks before creating a risk management strategy.
Decision Tree Analysis
The decision tree analysis is used to create various outcomes or consequences of an action. This risk analysis method is widely used because project teams can be prepared for any and all possible outcomes and create strategies to ensure that they can achieve the best one out of them. The decision tree analysis is used to chart or create a pathway for teams to follow to avoid risks and follow the best course of action for their project.
A decision tree analysis is mainly used when project teams do not know or are uncertain of the final outcome. This way, they can gauge the different possibilities and prepare for the worst of them, and expect the best. The process involves creating different outcomes, analyzing the probabilities of them occurring, and then creating a pathway or a course of action to achieve the best results.
Probability and Consequence Matrix
This is the most widely used method of understanding the impact and severity of any risk. The probability and consequence matrix is created to help teams rank the identified threats, vulnerabilities, and risks. This is done to identify how severe a risk could be if materialized. The severity of risks is calculated by multiplying the level of impact of the risk against the likelihood or probability of the risk-taking place.
By identifying and calculating the different factors of risk in the probability and consequence matrix, it also becomes easier for risk analysts and professionals to work with teams and come up with various risk avoidance and mitigation strategies for risk management.
The SWIFT Analysis stands for Structured What If Technique. This analysis method is used to understand the consequence and viability of all risks in projects based on different changes made to any aspect of a project. The risk analysis and project team evaluate all the changes made to the project based on the changes made in the project’s design or plan and use it to identify different Opportunity Risks to the project.
The bow-tie analysis is one of the most practical approaches to risk management. It helps teams understand the risks and consequences of the risks reasonably, which makes coming up with a risk mitigation strategy a lot simpler. The process is quite straightforward:
- The team identifies various risk events to a project or to the organization
- Then, the team divides each individual risk event into two sides: On one side, all the possible causes for the risk event taking place are listed. On the other side, all the possible consequences and impact of the risk are listed
- The risk professionals then analyze and create barriers or other mitigation methods to every cause of risk to prevent the consequence of the risk
Risk analysis is an important part of all projects and organizations’ security. Risks can directly impact a project’s success and can negatively affect the company by causing a loss in reputation, loss in revenue, and more. To protect the organization and its projects from these threats, certified risk management professionals are hired. The risk management certification helps all project managers, IT professionals, and security professionals increase their knowledge and expertise in the field.