Resolver’s Guide to Building a Risk Assessment Matrix
Success in any field requires you to take calculated risks. But you need to identify and understand your risks thoroughly before accepting them as part of your overall risk appetite, especially if you’re running a large, complex project with many stakeholders.
With so much riding on your project, you need to understand project risk from the outset comprehensively. That’s why crafting a well-built risk assessment matrix is vital to project success. A risk assessment matrix helps you predict future obstacles, overcome existing ones, and prioritize effectively.
In this article, we’ll run you through how building a risk assessment matrix helps you to prepare for uncertainty while more confidently delivering on objectives. We’ll also provide a step-by-step guide to creating your risk assessment matrix.
What is a risk assessment matrix?
A risk assessment matrix is a table that helps you and your team identify any potential risks to your project and predict the severity of those risks so that you can align on your acceptable level of risk. You don’t need any fancy tools to create one. A simple table in a word processing document or spreadsheet will suffice.
Any project can incur a variety of risks, including financial (such as budget overruns), operational (such as scope creep), and technical (such as data loss). You can even find your project at risk from external factors, like economic crashes or supply chain crises that are particularly hard to mitigate against.
Your risk assessment matrix allows you to build a centralized view of these risks, define them, and rate them for severity. The matrix presents all risks in one simple-to-understand visual form with clearly assigned values. It includes short explanations of each risk so that you understand the risk and its severity at a glance.
You can see a sample basic risk assessment matrix structure below.
The more severe a risk is the higher its place on the chart. This kind of simple taxonomy makes it very easy to see which ones are priorities and require urgent addressing. Another alternative is the bowtie risk assessment method.
Depending on how your organization determines the priority assigned to each risk, you may wish to create specific bands in your risk assessment matrix for different kinds of risk, as shown below.
The benefits of a risk assessment matrix
A thorough risk assessment matrix will help keep your project on track and on schedule. But just as importantly, it will help you optimize strategy and process around your project.
Improve risk and resource prioritization
With a risk assessment matrix, you determine your project’s highest risk and allocate resources to mitigate the chances of its occurrence or the impact should it happen. Getting buy-in on your risk assessment matrix helps to prevent high-priority risks proactively while also giving rationale for resource allocation across the board.
For instance, let’s say that you and your team have identified scope creep and shifting client expectations as high risk in an upcoming project. Knowing this, you would prioritize frequent meetings to confirm expectations around scope and project delivery, recognizing that more time spent in meetings may impact timelines for getting work out.
Similarly, if data compromise is an agreed-upon priority risk, you may decide to review the project budget and adjust resource allocation for that risk. For instance, you might want to overhaul your encryption tools and security strategy and schedule more input from a data audit officer, which may mean asking for more funding or cutting another line item from the project scope.
Risk assessment matrices don’t just guide you to where risk is; they’re also good for showing you where it isn’t. Suppose you saw development lead times become a project-threatening risk on previous occasions. Naturally, you may have allocated more developers to reduce development lead times on your current project, impacting resources for other projects or teams. However, your risk assessment matrix might show you that lead times are more relaxed this time or that you have better developer talent for this project and can allocate resources differently.
Prepare your front line to look for risk.
One of the biggest downsides of unforeseen risk is the burden it puts on your team. If you suffer an unexpected loss, a new company org restructure results in a mid-project change of scope, or an earthquake hits and throws your region into disarray, your team may have to work twice as hard to pick up the slack.
When project leaders clearly communicate risks, the project team knows what to look for during the project’s timeline and beyond. They can flag issues before they become significant incidents, take action sooner, and avoid future frustration and inconvenience.
Unprepared teams encountering unforeseen issues require more resources to navigate the impacts of whatever comes at them. Preparing your team with a comprehensive risk matrix will protect the budget, help to avoid the need to deploy emergency resources, and save your team members from unnecessary stress.
How to build a risk assessment matrix for your team
Building your matrix should be a collaborative process with input from everyone likely to be affected by the risks in question. Gather people from every department associated with the project and work together to build your risk assessment matrix.
Build a risk register
Start by building a risk register, the basic foundation for your risk assessment matrix. It’s a simple and thorough list of your project’s potential risks without any scores or ranks attached to each risk. Think of this portion of the process as the brainstorming session. You’re just trying to identify the risks, nothing more.
You should categorize your risk register based on different types of risk. This will ensure it’s as comprehensive as possible and make building your risk assessment matrix much easier. You might begin by writing down every financial risk you can think of, followed by every operational and strategic risk, and so on.
Assemble your stakeholders
Schedule meetings with stakeholders representing each risk category you’ve identified to get buy-in and determine who will be on the core project team. For example, suppose you’ve identified financial, operational, technical, and client-side risks. In that case, your meeting will feature at least one finance manager, a project manager, a tech lead, and a customer success manager.
Rank your risks
Once you’ve gotten your stakeholders together, pull out your risk register and give each risk a score between 1 and 3, with 1 being low risk and 3 being high risk. Discussing each risk should be cross-functional and not restricted to the stakeholder representing that risk category. As the nature of risk is interconnected, each risk carries potential outcomes for every stakeholder. Thus all stakeholders should be provided the opportunity to express their views on where a risk might rank. Be sure to encourage everyone to pitch in.
Roll out your risk assessment matrix
Once your risk assessment matrix is assembled and scored, roll it out among your stakeholders with specific instructions about what their teams should do to monitor and respond to each risk. For example, you might give the instruction that all prospective risks with a score of 1 should be surfaced during biweekly standups. Risks with scores 2 and 3 should be flagged immediately via your office communication platform, email, or preferred process.
> Read more on building your own risk assessment framework.
How Resolver’s Risk Intelligence platform helps risk assessments work harder for you
With the fate of a project riding on your shoulders, your relationship to risk will likely be complex. But knowing the risks and how they might prevent you from reaching your milestones or objectives is half the battle. With that knowledge documented in your risk assessment matrix, you can go on and take bolder risks with greater confidence.
Developing a risk assessment matrix is a significant first step in assessing your risk. Still, if done in isolation or silos, you could be missing the big picture of how risk assessments can help an organization deliver on its objectives. Centralizing your risk data and assessments in a risk management software solution can help ensure all teams have access to valuable information when they need it. Risk Intelligence software also helps transform your company’s risk culture to be more holistic, addressing the interconnectedness of risk. Check out one of Resolver’s upcoming product showcases to see how our flexible Risk Intelligence platform can be scaled to suit your needs.