The risk map is a tool that reflects the current situation of the business, as well as the economic, political and social situation that surrounds it. In this way we identify what aspects could affect our activity and how to solve them.
Risk maps are prevention tools. These maps try to locate the situation of a company, taking into account variables such as the economic, political and social situation that surrounds the company. In this way, the intention of the map is to identify which negative aspects could affect the economic activity of the company, allowing us to anticipate present and future scenarios.
Risk maps are widely used tools in the business world. In this way, the company can know the risks and adopt preventive methods to limit the effects.
What is a risk map for?
The main objective of a risk map is to synthesize all the information related to the uncertainties faced by the company. In this way we can proceed to the development of strategies aimed at dissipating these sources of uncertainty. The methodology consists of the ability to develop strategies that can mitigate possible present and future damages, as well as exposure.
A risk map is a very useful tool for business management. Risk maps allow knowing the risks that a company could face, both in the present and in the future. Taking into account a series of factors, such as the political, economic and social situation, we can anticipate the problem and adopt preventive methods that try to limit the possible negative effects that these could unleash.
Among the objectives of making a risk map are the following:
- Quantify the probability that a risk will occur.
- Measure the potential harm of each risk.
- Know the environment of the company.
- Increase the security of the entity.
- Know the risks that could threaten the company.
- Quantify the risks the company faces.
- Know the mistakes that could harm the company.
- Guarantee the present and future sustainability of the company.
Among others, the risk map serves to know all the aspects described above, as well as a myriad of tools that will allow us to get to know a company in greater depth.
How is a risk map made?
Although it may seem like a simple task, developing a risk map is a fairly extensive process. In addition, this requires extensive knowledge of the company and its environment, as well as business strategy. In the company, finally, there are few people who know the company very thoroughly, as well as its environment, so a full assessment of the risks is difficult.
However, with the necessary training, making a risk map is possible. To do this, we must follow a series of steps that allow us to carry it out, as well as carry it out in an objective and useful way for the company’s strategy.
Carrying out a risk map is a task that can be summarized in the following steps:
- Define and identify risks : In this way, first of all we must reflect on the organization, the business, the tasks, as well as the critical processes that the company has. In this way, synthesizing the information, we will be able to evaluate the vulnerabilities that, as internal weaknesses, the company has. We must measure all the factors very in detail, as well as any factor that could affect each of them, reducing the company’s capacity in the present and in the future.
- Quantify and qualify the risks : This evaluation must be done together with a very strict and critical analysis. Remember that the goal is to control all possible risks. Therefore, if we know the company’s exposure, as well as the objective and subjective probability of a risk occurring, we can classify them and prioritize those that interest us the most, depending on what we consider to be the most important within the company’s policy.
- Assess and prioritize risks : With these evaluations and analyzes, we will be able to obtain the first indicators on which to qualify and quantify risks. These are the potential losses, which we will base on historical series that allow us to make an approximation. As well as the KRI (Key Risk Indicator). In this way, we will be able to obtain indicators that, in a certain way, allow us to assess risks more objectively, as well as to prioritize them.
- Complete the prioritization matrix : When we have all the risks identified and measured, the next thing that remains is the prioritization of them. To do this, based on the probability and potential damage, we can classify them, prioritizing those that require more immediate action, as well as those that pose the most potential damage. For their classification, we will classify them in a matrix of colored cells that measure, in red, if the risk is high; in yellow, if we speak of a medium risk; in green, if the risk is low.
- Adoption of strategies : Once all the risks have been identified, as well as the prioritization of these, we proceed to the strategy. In other words, we define possible strategies to mitigate the potential negative effects that these risks could cause in our company.