Using Risk Assessment to Identify Risks
- Scenario planning is the process of anticipating possible changes in a business’s situation and devising ways of dealing with them
- This risk assessment is where a business identifies, evaluates and prioritises risks and the precautions that may be taken to protect against them
- This risk assessment is where a business identifies, evaluates and prioritises risks and the precautions that may be taken to protect against them
Hazards commonly covered by business risk assessments
Natural disasters
- Natural disasters are often unpredictable but their impact can be so devastating to business operations that they are a common element of risk assessment
- Identify the types of natural disasters that could be expected to occur in a particular area
- Assess the potential extent of the impact of a natural disaster on the business and its assets
- Estimate the likelihood of a natural disaster occurring and the potential magnitude of its impact
- Identify and implement measures to reduce the risk (e.g. evacuation plans)
- For example, 2022's Storm Eunice caused significant disruption to transport networks and damage to commercial property across England and was followed by a period of flooding that closed hundreds of businesses
IT systems failure
- Information technology systems are used extensively by most businesses and an IT systems failure can have a devastating effect on a business's ability to carry on operating normally
- Business IT systems are at risk for a variety of reasons, such as
- Malware (e.g. viruses) can infect a business's IT system and cause significant damage including loss of data and system downtime causing financial loss
- Phishing involves cybercriminals tricking employees into giving away sensitive information such as login or financial details
- A data breach occurs when sensitive or confidential data is lost due to a cyberattack, human error or negligence
- Downtime is when a system or application is unavailable as a result of hardware or software failures, power outages or cyberattacks
- Insider threats come from within an organisation and can include
- Employees who intentionally or unintentionally cause harm to the business's IT systems
- Stealing sensitive information or causing a system outage
- Employees who are not adequately trained or aware of cybersecurity best practices can pose a significant risk to the security and integrity of a business's IT systems
Loss of key staff
- Losing key members of staff can cause difficulties especially if they are unplanned (e.g. as a result of sudden illness or incapacity)
- Loss of experience and knowledge can impact a business competitive edge
- Losing a figurehead or influencer can affect the morale of remaining employees as well as the culture and direction of the business
- Business contacts and relationships with customers and suppliers may be lost
Exam Tip
As well as carrying out detailed risk assessments, many businesses also plan for those uncertain events that can bring opportunities in a wider exercise known as scenario planning.
These businesses are in a good position to respond swiftly to external factors that operate in their favour as they have weighed up the various options in advance.