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How to analyse risks
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| Rating | Expression | Attributes |
| A | Extremely likely | The incident will most probably occur under most circumstances |
| B | Likely | The incident will probably occur under most circumstances |
| C | Possible | The incident may occur under certain circumstances |
| D | Unlikely | The incident is unlikely to occur |
| E | Rare | The incident will only occur under the most exceptional circumstances |
Similarly, consequence arising from an incident occurring may be qualitatively measured. An example of a consequence measure is provided below:
| Rating | Expression | Attributes |
| 1 | Negligible | Very minor injury, very small or no cost. |
| 2 | Minor | Minor injury (first aid required), minor cost (up to $5000) |
| 3 | Moderate | Medical treatment required, average cost (say up to $25,000) |
| 4 | Significant | Major injuries with significant potential for financial loss (say up to $100,000) |
| 5 | Disastrous | Fatality, very serious injury (amputation, loss of an eye and the like) with huge potential for financial loss (say above $100,000) |
When likelihood and consequence are combined, an example of the analysis matrix is as follows:
Legend
L = low risk, manage by routine procedures
M = moderate risk, management responsibility must be specified
S = significant risk, senior management attention needed
H = high risk, immediate action needed
Recognising and exploiting opportunities
Risk analyses are generally directed at the negative consequence of risks. The consequence measure therefore reflects the losses or undesired outcome that might arise. However, risk management is increasingly being applied to identify and prioritise opportunities as the risk associated with not exploiting an opportunity or embarking on a particular business strategy could be considerable. In many cases, the 'upside risks' are potentially more serious than the risk that bad events will occur (ie. the 'downside risk').
When considering opportunities, the likelihood measure need not change, as it will describe the chance that a benefit will arise. The consequence measure must, however, be adjusted.
An example is as follows:
| Rating | Expression | Attributes |
| 1 | Insignificant | Small benefit, low financial gain |
| 2 | Minor | Minor improvements to image, some financial gain |
| 3 | Moderate | Some enhancement to reputation, high financial gain |
| 4 | Major | Enhanced reputation, major financial gain |
| 5 | Outstanding | Significantly enhance reputation, huge financial gain |
When risks and opportunities are being considered together, a two directional measure of consequence may be appropriate.
Legend (for opportunities)
L = low opportunity, manage by routine procedures
M = moderate opportunity, management responsibility must be specified
S = significant opportunity, senior management attention needed
H = high opportunity, detailed planning required at senior levels to prepare for and capture opportunity.
Semi-quantitative analysis
This is qualitative analysis with a weighting index. The number allocated for each qualitative scale does not bear any real relationship to the actual magnitude of likelihood or consequence. It only provides an order of magnitude for analytical purposes. It allows risks to be prioritised in a more detailed manner than what is achieved by pure qualitative analysis. It does not provide real values, as would be the case in a quantitative analysis.
The weighting index should be developed with care to properly reflect the relativity of risks so that the levels of risks developed through such analysis produce consistent outcomes.
Quantitative analysis
Data from a variety of sources is used to undertake quantitative analysis. The quality of this type of analysis is dependent on the accuracy of the numerical values used.
Likelihood is usually expressed in terms of probability (the chance that when that source of risks exist, consequence will follow), exposure (how often a source of risks exists) or a combination of exposure and probability. For example the result of an inspection of doors shows that 20 of the 50 doors in a facility are equipped with faulty door closers that have potential of causing injury, especially to minors. There is therefore a 40 per cent exposure to injury. The probability that a minor may be injured will depend on the likelihood of the person coming into contact with a faulty door and jamming fingers or hands in the door. This information can be obtained from past trends whether at the facility itself or from statistics available from other sources.
Consequence is the resulting outcome being a loss, injury, disadvantage or gain. This can be measured or expressed.
A more accurate profile can be established if data over a few years are available. Organisations should try and develop such a database of information whenever possible.
This page is available online at:
http://www.cpaaustralia.com.au/cps/rde/xchg/cpa/hs.xsl/2742_3464_ENA_HTML.htm
