Risk assessment matrix: Free template and usage guide
A risk assessment matrix identifies issues that present the greatest potential for business disruption or damage. Use this free template to focus risk mitigation plans.
A risk assessment matrix is a helpful visual tool to identify business risks, threats and vulnerabilities as part of a risk management program. Disaster recovery teams, risk managers and business executives can use a matrix to categorize risks by likelihood, potential impact, and characteristics such as financial and reputational harm to an organization.
A risk matrix template provides a simple yet effective starting point to perform a risk assessment. Such assessments can become very complex, especially with sophisticated risk modeling algorithms at play. However, there are common factors that typically shape a risk assessment matrix. As a result, it's feasible to begin with a template and customize it to include the particular risks being assessed.
A downloadable risk assessment matrix template and guidance on using it are included below. Organizations can create their own matrix based on the template. Not surprisingly, more complex risk assessments require larger and more detailed matrices.
Many other tools for conducting risk assessments are also available today, including risk analysis software and risk register applications that are used to document and track different risks. The nature of a planned assessment and the level of detail to be provided will help determine both the final design of the risk assessment matrix and the related tools that will be required.
Importance of performing a risk assessment
A risk assessment can help disaster recovery teams ensure they complete a business continuity project or activity on time and within the allotted budget. In addition, a risk management team uses the results of a risk assessment to prioritize different business risks and develop plans to deal with them. This type of assessment gives organizations knowledge of situations or possible scenarios that threaten the success of business initiatives before they're launched, as well as during an initiative and even after its completion.
In the course of conducting a risk assessment, the primary metrics to identify are the likelihood of a risk event occurring and the likely impact to a project or business activity if the event occurs. Many external sources of risk data are also available, such as published insurance risk tables and actuarial tables. These sources can provide important data based on extensive analysis of risk events to help inform an assessment and give risk decision-makers better information.
Why use a risk assessment matrix?
There are many factors to consider during a risk assessment. A risk assessment matrix organizes risk data and other elements of an assessment to help streamline the process and make the results easier to understand. Using a matrix can also help an organization do the following:
- Define the different types of risk it faces.
- Identify relevant business assets for the assessment.
- Determine the criticality of the assets.
- List the specific risks and threats to the assets.
- Determine the criticality of the identified risks.
- Calculate the organization's tolerance for each risk to help plan controls.
- Validate the effectiveness of current risk control and mitigation strategies.
- Identify potential new mitigation strategies, technologies and methods.
- Calculate overall risk values for the organization, such as residual risk.
Applying risk matrices to different types of organizations
The risk assessment matrix template included in this article can be applied by companies in various vertical markets. The risk entries put into the template likely will vary, at least somewhat, from industry to industry. They also will differ based on the specific risk profile of individual businesses, even within the same industry.
For example, a risk assessment calculation table for an organization that is located in a hurricane zone and has backup systems in the cloud could look like the example provided in the template. As part of the data-gathering process for the assessment, the risk management team in this scenario should examine relevant data on weather and natural disasters from the National Oceanic and Atmospheric Administration, the National Weather Service and the National Hurricane Center.
The team should also review risk data from the company's cloud services provider and cloud industry organizations, such as the Cloud Computing Association and the Cloud Security Alliance. Among other items, this data could include the number of past outages that the cloud services provider has experienced in the regions where the company operates and the duration of those outages.
Other organizations can change the risk events listed in the example as needed to accommodate their specific risk assessment requirements. In addition, some of the common risk types that can be incorporated into an assessment and the creation of a matrix include the following:
- Operational risk.
- Strategic risk.
- Financial risk.
- Compliance risk.
- Personnel risk.
- Technology risk.
- Cybersecurity risk.
- Reputational risk.
What a risk matrix includes
A color-coded general risk assessment matrix is the most widely cited form. Also sometimes called a risk map, it plots risks in an X-Y matrix that measures their likelihood on one axis and their potential business impact on the other. There typically are equal numbers of rows and columns, but the number of them can vary. The example below shows a 5x5 risk matrix, which is a popular option. But the downloadable template contains a 6x6 version, and organizations can create smaller ones, down to simple quadrants.
Each axis in such a matrix includes a scale that reflects an increasing likelihood of a risk occurring or a more severe business impact. The rows and columns are usually given corresponding numerical values. In a 5x5 matrix, for example, a risk's likelihood can be rated from 1 for improbable or very unlikely to 5 for frequent or very likely. Similarly, its impact can be scored from 1 for negligible to 5 for catastrophic. Multiplying the two scores for each field in the matrix provides numerical values that can be used to categorize low, medium and high risks, with color coding to further visualize the different categories.
Another type of matrix is the assessment calculation table that's also included in the template. Instead of an X-Y plot, it lists risks or risk events on different rows in the table. The likelihood and impact severity of the risks are listed as columns, which can also include other metrics. For example, the table in the template adds a financial impact column. Numerical scores for a particular risk are entered into each field in a row and multiplied to calculate a risk factor for categorization uses.
Click here to download
our free risk assessment
matrix template.
How to use the risk assessment matrix template
The general risk assessment matrix provided in the downloadable template is relatively simple and straightforward to use. Once business risks have been identified, assess their likelihood and potential impact, assign the appropriate numerical rankings and then plot them in the corresponding fields of the matrix. When all the risks being assessed have been plotted, the results can be used to prioritize them and create a plan for managing them.
The second part of the download is a ready-to-use calculation matrix template for conducting a risk assessment that includes likelihood, overall impact severity and financial impact. In that template, the likelihood rating in column A ranges from 0.0 for no likelihood of occurrence to 1.0 for 100% likelihood. Gradations can be indicated with numerical entries from across that entire range.
The same numerical weightings are used to rate likely impacts from no damage or disruption to severe damage or disruption. Column B is for the overall impact severity, while column C denotes financial impact as a standalone metric. Using additional factors such as that can produce a more realistic calculated risk factor.
More complex assessment values can also be substituted for the 0.0 to 1.0 range. After deciding on a numerical scale, take the following steps to perform an assessment using the calculation template:
- List the risks, threats and vulnerabilities to be assessed in the first column.
- Insert the likelihood factor into column A for each item being assessed.
- Insert the impact factors into columns B and C.
- Multiply A x B x C to arrive at the calculated risk factor.
Once the risk factors are calculated, refer to the color-coded rating chart that follows the matrix template. Applying it to the final column provides a visual representation of the calculated risk factors. An example of a completed risk assessment calculation matrix is included in the template and below to demonstrate how the process works.
Risk factor ratings are arbitrary ranges that can vary by process, so be sure that management reviews and approves any metrics before a risk assessment is done. But the two matrix options outlined here and included in the template should give organizations a good start on assessing risks for disaster recovery initiatives and enterprise risk management programs.
