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What is the importance of a risk assessment?

Risk is a natural part of being human. We, as thinking things are designed to make mistakes, and more often than not, they happen without the intervention of human error. In the business world, minimising and calculating the many potential or actual risks can save money, time, energy, and lives lost or injured working. According to the Occupational Safety and Health Administration, businesses in the United States are not mandated to conduct risk assessments as part of their health and safety procedures, but to run a business sufficiently it is recommended.

In contrast, the United Kingdom’s Health and Safety Executive and the Canadian Centre for Occupational Health and Safety require assessments are conducted as a matter of law. They are not “recommended” and are integral to safely operating business for their employees. To measure risk will not stop incidents from happening altogether, whereas you will be able to minimise the risks by taking necessary steps that will develop better workplace practices and employee and customer morale. McDonald’s is the largest fast-food restaurants in the world and has over 30,000 chains in most countries around the planet. However, in 1992, they were sued by an American senior woman and settled with her for an undisclosed amount. She had ordered a coffee which spilt into her lap. An investigation into her claims, during the trial, highlighted that they were serving coffee at temperatures of 190 degrees Fahrenheit.

More recently, in 2011, New Balance was sued and ordered to pay up to $2.3 million in damages. Three women and refunds to hundreds of customers were due to the shoes they advertised as being able to tone and burn 8 per cent more calories than regular trainers and were instead found liable for causing serious harm. In a shocking discovery, Volkswagen was cheating on emissions tests and agreed with a court to pay a $14.7 billion settlement payable to the owner of affected cars. Many of these customers received their payouts in buybacks and repairs.

The Risk Matrix

The 5X5 matrix is a tried, tested and perfected a procedure that allows you to see how likely a potential hazard is to occur and measure the consequences of those risks. The final report created from the graph can better communicate and assess the likelihood and severity of risk to all departments, internally and externally, to the business. The visual tool provides a clear template for risk assessments and is easy and quick to learn for those with common knowledge, and does not need to be for use in other sectors and situations.

Risk matrix usages:

  • IT Security;

  • Hospitals;

  • Education;

  • Theme Park;

  • Betting and Racing;

  • Pubs and Restaurants;

  • Hotels;

The table is made up of horizontal and vertical columns and is colour-coded to match the severity of a risk. Being able to see that green is used for low risk, yellow for medium, and finally, red for the high risk represents what needs an immediate or long-term resolve. Each cell of the Risk Matrix contains a number on the severity and colour to code the prediction of the numbered risk occurring.

While the five-by-five is for any industry, it has four specific risk types. Individual risk assessments are the last step in prioritising and managing the risks that require fast action and a clear focus to avoid potential impacts. The communication of risks is a principal factor in running a safe and efficient organisation. The final report must be easy to read and understand.

How to read a 5X5 Risk Matrix

The above templates show several factors that would make up the final report. The following sections will explain the components found on the graph and the steps needed to successfully use a 5X5 Risk Matrix to understand the situations that could evolve within a business's practice.

Probability is a percentage or a number that indicts whether a risk is likely to happen. Using the numbers One as Rare, may not occur, with minimal consequences, and Five as Almost Certain, possibly imminent.

The impact can leave a business with expensive and morally inaccurate consequences; however, they can also represent those risks found on the low end of the scale.

Impact terms:

  • Insignificant: Low with no risks;

  • Minor: Could cause injuries to a mild extent;

  • Significant: Chance of hospitalisation or death;

  • Major: Will require hospitalisation, possible death;

  • Severe: Serious injuries or illnesses resulting in death.

The Steps to Success

  1. When conducting a risk assessment, the first step is to provide a full review of the background of the project and section of the business or system you're evaluating. Include all the information about the risk site's location and whether employees, clients or customers are involved.

  2. Now, you can use your 5X5 Risk Matrix template to measure the risk and how likely or unlikely it will occur. Operating a 1 to 5 scoring system, the probabilities can be added to the report:

    1. Rare: less than 10 per cent

    2. Unlikely: less than 50 per cent

    3. Moderate: equal 50 per cent chance

    4. Likely: 60 to 80 per cent

    5. Almost certain: over 80 per cent

  3. Next, the impact of the risks must be determined again using a scoring system of 1 to 5 and showing at what level you believe the risk can affect the business or project.

    1. Insignificant: Of little consequence or injury

    2. Minor: manageable consequences and chances of injury

    3. Significant: Some harm and short-term financial problems

    4. Major: Possibility of death and long-term financial problems

    5. Severe: Death and damages

  4. Take your relevant impact and probability factors and scale them using the following values:

    1. Acceptable (1-4): Can be left as is.

    2. Adequate (5-9): Must be checked for further changes to risk.

    3. Tolerable (10-16): Regular and consistent checks and improvements are needed.

    4. Unacceptable (17-25): Everything must stop to take urgent action

  5. Finally, you can take the compiled report and provide relevant recommendations. These recommendations will aid in providing appropriate ways to minimise or prevent the risk.

This tool and guide can help industries better communicate, manage and assess the risks that could cause harm and long-term damage to everyone involved. Using this matrix to its full advantage will aid you in making better business decisions and in the correct procedures to follow; no matter what knowledge of risks you have, the 5X5 Risk Matrix can work for you.

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