The risk identification process is the first step in managing risks. It involves identifying potential risks that may impact an organization’s objectives, operations or stakeholders. The risk identification process includes the following processes.

Establish the Context
Before starting the risk identification process, it’s important to establish the context by defining the scope of the risk assessment, identifying relevant stakeholders, and clarifying the organization’s objectives and risk appetite.

Brainstorm Potential Risks
The next step is to brainstorm potential risks that could impact the organization. This can be done through various methods, such as conducting interviews, holding workshops or reviewing historical data. It’s important to involve stakeholders from different parts of the organization to ensure a comprehensive list of potential risks.

Categorize Risks
Once potential risks have been identified, they can be categorized based on their type or source. Common categories of risks include strategic, financial, operational, compliance and reputational risks.

The risk identification process is a continuous process that should be reviewed and updated regularly to ensure that new risks are identified, and existing risks are appropriately managed. By identifying potential risks and assessing their likelihood and impact, organizations can develop effective risk management strategies to protect their objectives and stakeholders.

The second step in the ERM process is to analyze or assess the risks that have been identified. The goal of the assessment phase is to understand what problems or opportunities a risk might cause and to determine the magnitude of the risk for prioritization in a later step. 

When assessing and rating risks, the following factors are considered.

Likelihood
This factor measures the probability of a risk event occurring.

Impact
This factor measures the potential consequences of a risk event.

Velocity
This factor measures how quickly a risk event can materialize and cause harm.

Preparedness
This factor measures the organization’s level of preparedness to handle the risk.  

After assessing the factors of each risk, the risks can be prioritized by assigning a risk rating score. By applying the risk prioritization process, the administration can ensure that they are allocating resources to the most significant risks and taking appropriate measures to protect stakeholders and the mission objectives.

The following methodology is used for rating risks: Risk Rating = (Impact + Velocity) x Likelihood

The impact and likelihood factors are assessed on a scale of one to five, with higher numbers indicating a greater impact or probability of occurrence. The velocity and preparedness factors are assessed on a scale of one to four, with higher numbers indicating an increasing speed to occurrence and lack of existing controls. Though not included as part of the risk ranking formula, the preparedness factor is used when prioritizing risks to provide management with an added level of maturity and detail to the risk discussion.

The risk rating formula is used to calculate a numerical score for each identified risk, which is then used to prioritize risks and determine the appropriate risk management strategies. Risks with higher risk rating scores are typically given priority attention and resources for risk management and mitigation efforts.

Once risks are identified and prioritized, a range of strategies for mitigating risks can be utilized to treat the risks. Establishing policies, procedures and controls enables the organization to keep risks within acceptable ranges. A risk management plan is developed for each risk that outlines the specific strategies and actions that will be taken to mitigate the risk. The plans define roles and responsibilities for risk mitigation, establish timelines for completion and identify resource requirements. Some common strategies for mitigating risks in ERM include the following.

Acceptance
Accepting the risk and its consequences, either because the risk is too difficult or too expensive to mitigate, or because the potential benefits outweigh the potential consequences.

Avoidance
Avoiding the risk entirely by not engaging in the activity that could result in the risk.

Reduction
Reducing the likelihood or impact of the risk by implementing risk management controls or safeguards. This could involve implementing security measures, redundancy systems or establishing procedures and guidelines.

Transfer
Transferring or sharing the risk to another party, such as through insurance or outsourcing to a third-party provider.

Exploitation
Actively seeking opportunities to take advantage of the positive aspects of a risk, such as a new market opportunity or emerging technology.

Each of these strategies has its advantages and disadvantages, and the appropriate strategy will depend on the nature and context of the risk. A combination of strategies may be used to mitigate the risks effectively. Additionally, it’s important to regularly review and update risk mitigation strategies to ensure they remain effective and relevant.

Implementing risk mitigation strategies involves taking action to reduce the likelihood or impact of identified risks that could negatively impact an organization’s objectives. This may involve implementing new procedures, guidelines or controls, or modifying existing ones. Communication and training are essential for effective implementation of the selected risk mitigation strategies. 

Stakeholders should be informed about the strategies as well as their roles and responsibilities in the implementation process. Training may also be necessary to ensure stakeholders have the necessary skills and knowledge to implement the mitigation strategies effectively.