How does your organisation choose to approach and manage risk? Your risk appetite and control mechanisms may change overtime, but at any point in time, a risk control matrix can help you better manage and deal with risks.
To better answer, “What is a risk assessment matrix?” we will share everything you need to know about how to create your own.
A risk and control matrix, or RACM/RCM, is a tool that aids organisations in being able to identify, rank, and deal with risks. The visual tool is created at the intersection of two main considerations, namely: the likelihood that a risk will occur along with the potential impact that the risk occurring will have on the business.
Once listed and ranked, the risk matrix can include organisation and categorisation based on high, moderate, or low risks. Risk matrices can play a large role in being able to prioritise risk, as well as to develop risk mitigation strategies.
No matter the size of your organisation, risk is inevitable. Ignoring risk can result in detrimental outcomes, or even the shut down of your business. As such, many businesses utilise a risk assessment matrix in order to approach risk wisely and in a timely manner.
Using a risk control matrix can benefit your organisation by:
A risk control matrix also makes it simple to always have an up-to-date look at risks that may be incipient or recurring. With a risk matrix, you can also begin to notice patterns and maintain a record of risks so you always know the best way forward when something uncertain may arise.
The benefits of a risk control matrix are far-reaching. For starters, everyone in the organisation will gain transparency and understand the risks at hand. Not only will people be aware of what they may expect, but having a visual representation of risk allows for the proper allocation of resources.
This means that every person on your team will understand their responsibility and role associated with dealing with risk, which aids in accountability.
Additionally, executives and stakeholders alike can gain peace of mind by knowing the possible risks, as well as being able to review the mitigation strategy chosen.
When it comes to financial reporting, a risk and control matrix can aid in the auditing process. Along with automation solutions that make auditing easier, a risk assessment matrix provides an auditor a robust view of how the business maintains internal controls, which can provide a level of security and confidence in the financial reports.
Automation solutions provide you with an easy way to execute processes with little to no human intervention. At the same time, they can help reduce compliance risk because every action that takes place within the system is recorded.
When it comes time to review your processes, having an audit trail ready to review at the click of the button eases the process for both internal and external auditors.
Typically, risk can feel like an overwhelming concept to try and manage, given the inherent uncertainty and unknowns. However, developing a risk and control matrix does not have to be complex.
In fact, by following these steps, you can create your own risk and control matrix without hassle:
The first step involves identifying the risks that your organisation faces. A good definition of risk is “the possibility that events will occur and affect the achievement of strategy and business objectives.”
The best way to identify risks cohesively is to involve your team and key stakeholders and carry out a brainstorming session. The more people involved, the less likely you are to overlook a potential threat.
Since risks come in different shapes and sizes, it’s best to categorise risk into these buckets:
Once you’ve listed the risks, it’s time to start evaluating them for their two main attributes (which we briefly touched on at the start of this article). You’ll want to rank the likelihood (or probability that the risk will occur) and the impact (or the level of severity that the risk will have on your business).
Naturally, people have different opinions about the two factors here. So, the more input you get from your team, the more likely you are to get closer to the realistic answers for both points.
Based on your risk criteria, you can use a scale to determine the level of risk. There are different ways you can define risk. For example, some organisations will use a scale of: high risk, medium risk, and low risk. Others may instead choose a numerical approach by ranking the risk on a scale of 1-5, with 5 being extremely high risk and 1 being extremely low risk.
Once you have the likelihood and impact, as well as the levels of risk listed, you can then prioritise risks. The risk control matrix will likely change over time, so it’s best to constantly revisit the visualisation to amend it when necessary.
Once you have the risks listed, you have to choose how you want to manage them. There are four main strategies to respond to risk. Most organisations look for consensus when deciding which strategy to apply to each risk.
One of the most challenging steps in creating a risk and control matrix comes down to determining the likelihood of a risk occurring.
In order to do so, it may be useful to break up the likelihood into five sections:
By utilising automation software, it can become easier to spot risks, patterns, and trends and better deduce what risks are truly important to focus on for your business. Given advanced data analytics and technology, the creation of a risk control matrix doesn’t have to be done in the dark, so to speak.
When working on your risk and control matrix, keep in mind these essential ingredients:
By using an automation software solution, it becomes much easier to carry out business processes and maintain adequate oversight over everything that happens within your organistions.
These solutions can carry out end-to-end automation, which in itself reduces manual error, increases oversight and reduces risk. Additionally, automation solutions remove bottlenecks, ensure data accuracy, and can alert relevant parties should an issue arise so that risk can be minimised by resolving the problem immediately.
A risk control matrix is a highly useful tool for businesses of all sizes. Not only does a risk control matrix help to prioritise risk, but it also provides a visual representation and roadmap for employees and stakeholders alike so that there is a clear plan of action at all times.
With automation software, businesses can better manage and reduce risk. Automation solutions provide increased transparency, proper internal control mechanisms, and an easy way to carry out audits so that any type of risk can be managed and monitored in real-time.
What is a risk control matrix and how do I create one? Check out the answers to these questions and more in this guide on risk control.
We’ve compiled some of the necessary strategies for dealing with audit risk. See how automation can benefit your business.