1. Identify the Risks
The first step in creating a risk matrix is to identify potential risks that are relevant to your business. These risks can be strategic, operational, financial, technical, or external.
2. Define Levels for Each Risk
Define the levels of each risk based on their likelihood and impact. Likelihood refers to the probability of a risk event occurring, while impact refers to the potential consequences or severity of a risk event.
3. Create the Matrix
Create a grid or table with one axis representing the likelihood of the risk and the other axis representing the impact of the risk. Each cell in the grid represents a different level of risk.
4. Prioritize the Risks
Once you’ve placed each risk in your matrix based on its likelihood and severity, you can prioritize your risks. This helps you allocate resources effectively and focus on the most significant risks first.
5. Outline Your Risk Controls
Identify the measures you’ll take to mitigate each risk. This could include preventative measures to reduce the likelihood of the risk, or contingency plans to reduce the impact if the risk does occur.
6. Review and Update the Matrix
Regularly review and update your risk matrix to ensure it remains relevant and effective. This could be done at regular intervals, or whenever there are significant changes in your business environment.
Risk Scoring
Risk scoring in a risk matrix is typically calculated by multiplying the likelihood and impact ratings. For example, if a risk has a likelihood rating of 4 and an impact rating of 5, the risk score would be 20. This score can then be used to prioritize risks and develop appropriate risk management strategies.
Download a risk register starter Kit: How to Create a Project Risk Register | Smartsheet