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Risk identification: A key step in risk management

Dr. Heather Buker |

December 30, 2022
Risk identification: A key step in risk management


Overview of risk identification

Risk identification is a crucial step in the risk management process, as it helps project managers and organizations identify potential risks that may impact the success of a project or the overall business. During this process, various types of risks are identified and analyzed, including both negative risks (or threats) and positive risks (or opportunities). By identifying these risks, project managers can develop strategies to mitigate potential impacts and ensure the project or business remains on track. In this article, we will explore the objectives and steps of effective risk identification, the importance of documenting risk statements in a risk register, as well as the sources and types of risks that organizations may encounter. We will also discuss the significance of external cross-checks and the need for a comprehensive risk management plan in addressing potential risks. By understanding the risk identification process, organizations can proactively manage and mitigate risks, leading to successful project outcomes and continued business growth.

Benefits of risk identification

Risk identification is a crucial step in proactive risk management and helps prevent potential risks from adversely affecting business operations and goals. By identifying all possible risks early on in a project, organizations can effectively analyze and prioritize them, allowing for the development of appropriate risk mitigation strategies. This proactive approach enables businesses to address challenges and uncertainties before they escalate, reducing the likelihood of costly disruptions and ensuring smoother project execution. Through comprehensive risk identification and documentation, businesses gain a comprehensive understanding of potential risks, enabling them to allocate resources effectively and make informed decisions. This process also facilitates effective communication among project teams and stakeholders, ensuring everyone is aware of the risks involved and can collectively work towards minimizing their impact. Ultimately, the benefits of risk identification lie in its ability to enhance project success rates, protect business operations, and maintain alignment with strategic goals.

Process of risk identification

The process of risk identification is an essential component of effective risk management. It involves identifying all potential risks or uncertainties that could impact a project or business. By systematically identifying potential risks, project managers and risk managers can make informed decisions and develop strategies to mitigate or manage these risks. The risk identification process typically begins by gathering project documents, such as project charters and cost estimates, and conducting an external cross-check to identify potential threats or common risks. It also involves brainstorming and engaging stakeholders to generate a comprehensive list of risks, including both negative risks and positive risks that may present opportunities. The objective of risk identification is to identify and document all potential risks that could impact a project or business, considering various sources of risk such as financial risk, business risk, cyber risk, legal risk, reputational risk, and natural disasters. Through this process, project managers can assess the level of risk, probability, and potential impacts and then develop a risk register or list of individual risks for further analysis and evaluation.

Brainstorming session

A brainstorming session is a valuable tool in the risk identification process that brings together stakeholders from different departments or disciplines to generate creative and innovative ideas on potential risks. This collaborative activity enables the project team to explore a wide range of possibilities and uncover risks that may not have been immediately apparent.

During a brainstorming session, the participants are encouraged to freely express their thoughts and ideas, without any criticism or judgment. This allows for a free flow of ideas, sparking creativity and opening up new avenues of thinking. By leveraging the knowledge and expertise of individuals from different backgrounds, a broader spectrum of risks can be identified, including those that may be overlooked by a single individual.

The benefits of a brainstorming session in fostering collaboration and teamwork among project team members are significant. It allows team members to work together towards a common goal, pooling their knowledge and skills to effectively identify potential risks. This collaborative environment promotes open communication, trust, and respect among team members, leading to increased synergy and productivity.

Furthermore, a brainstorming session encourages active participation and engagement from all stakeholders, making them feel valued and heard. It creates a sense of ownership and responsibility among team members, as they contribute to the risk identification process. This not only improves the quality of risk statements and analysis but also enhances the overall risk management plan.

In conclusion, conducting a brainstorming session is a powerful and effective means of identifying potential risks. By bringing together stakeholders from different departments or disciplines, creative ideas can be generated and collaboration and teamwork can be fostered. This collaborative approach enhances the overall risk management process, leading to better decision-making and more successful project outcomes.

Identifying risk sources

In order to effectively manage risks, it is crucial to first understand where these risks come from. This process of identifying risk sources allows organizations to gain insight into the various factors that can contribute to potential risks and enables them to develop appropriate risk mitigation strategies.

Risk sources can originate from both internal and external factors. Internal sources include issues such as human errors, inadequate resource allocation, insufficient training, or poor communication within the organization. External risk sources, on the other hand, encompass factors beyond the organization's control, such as natural disasters, economic downturns, or regulatory changes.

Within the realm of business operations, numerous potential risks can emerge. These may include supply chain disruptions, technological failures, market volatility, or cyber threats. Recognizing and assessing these risk sources equips organizations with the foresight to proactively address vulnerabilities and develop contingency plans.

By comprehensively identifying risk sources, organizations can ensure a robust risk management process. This knowledge allows them to prioritize resources, establish risk mitigation strategies, and implement effective measures to safeguard against potential threats. Ultimately, understanding risk sources is pivotal towards achieving a resilient and successful risk management approach.

Analyzing and evaluating risks

Analyzing and evaluating risks is an essential step in the risk management process. By thoroughly understanding the potential risks, organizations can make informed decisions and develop strategies to mitigate them effectively.

One method of analyzing risks involves conducting a probability assessment. This involves assessing the likelihood of each identified risk occurring. Probability can be measured using historical data, expert opinions, or statistical models. By assigning probabilities to risks, organizations can prioritize their response and allocate resources accordingly.

Another method is impact assessment. This involves evaluating the potential consequences or impacts that each risk may have. Factors considered during impact assessment can include financial damage, reputational harm, operational disruptions, or legal consequences. By understanding the potential impacts of risks, organizations can prioritize their efforts towards those with the highest potential impact.

Actuarial tables can be a valuable tool in risk analysis. These tables use historical data and statistics to estimate the likelihood and potential financial damage of specific risks. By utilizing actuarial tables, organizations can prioritize risks based on their likelihood and potential financial consequences, enabling them to allocate resources effectively.

Establishing a risk assessment scale is crucial in evaluating risks. This scale can be based on factors such as likelihood, impact, and severity. It is also important to incorporate relevant factors like strengths, weaknesses, opportunities, and threats (SWOT analysis) in the risk assessment process. This holistic approach helps to identify the overall risk landscape and make informed decisions on risk prioritization and mitigation strategies.

Analyzing and evaluating risks through methods such as probability assessment, impact assessment, and actuarial tables is vital for effective risk management. Incorporating a risk assessment scale and considering relevant factors like SWOT analysis further enhances the risk evaluation process. By thoroughly understanding and evaluating risks, organizations can develop appropriate mitigation strategies and minimize potential negative impacts.

Classifying the risks

Risk classification is the process of categorizing identified risks based on their nature, characteristics, or attributes. It involves grouping risks into different types or categories to better understand their characteristics and potential impacts. By classifying risks, project managers and risk managers can better prioritize, analyze, and manage them.

The benefits of risk classification are multi-fold. Firstly, it allows for a more systematic and structured approach to risk management. By organizing risks into categories such as financial risks, operational risks, legal risks, reputational risks, and so on, it becomes easier to identify and assess their potential impacts on the project or business.

Secondly, risk classification enables a better understanding of the underlying causes or sources of risks. By categorizing risks, it becomes possible to identify common risk factors or sources that are contributing to multiple risk types. This understanding can help in developing targeted risk mitigation strategies and improving risk management processes.

Additionally, risk classification provides a framework for communication and reporting. It enables stakeholders to have a clear overview of the various risk types involved in a project or business operation, making it easier to communicate and make informed decisions regarding risk management strategies.

Risk classification plays a crucial role in the risk management process by organizing risks into different types or categories. The benefits of risk classification include a more structured approach to risk management, a better understanding of risk sources, and improved communication and reporting capabilities.

Prioritizing the risks

Prioritizing risks is an essential step in effective risk identification and management. It involves evaluating the probability of risks occurring and assessing their potential financial damage. By understanding which risks pose the greatest threat to the organization, resources and efforts can be focused on mitigating these risks first.

One way to assess the likelihood of risks occurring is by using actuarial tables or historical data. These tables provide insights into the probability of specific risks happening based on past occurrences. By analyzing this data, organizations can prioritize risks that have a higher likelihood of occurring.

Similarly, assessing the potential financial damage involves analyzing the potential impact a risk can have on the organization's financial stability. This can be done by considering factors such as cost estimates, cost uncertainty, and the potential impacts on revenue, expenses, and investments.

Once the probability and potential financial damage of risks are evaluated, risks can be prioritized based on their likelihood. Risks with a higher likelihood should receive more attention and resources compared to risks with a lower likelihood. By focusing resources on the most significant risks, organizations can effectively manage and mitigate potential threats.

Prioritizing risks is crucial for effective risk management. By evaluating the probability of risks occurring and assessing their potential financial damage, organizations can prioritize and manage risks based on their likelihood. This ensures that resources are allocated efficiently, enabling the organization to effectively address and mitigate potential threats.

Types of risks to consider

When it comes to risk management, it is essential to consider various types of risks that can impact an organization. Some of the common types of risks that organizations need to take into account include financial risks, legal risks, reputational risks, and business risks. Financial risks involve potential losses or financial instability due to factors such as market fluctuations, economic downturns, or poor financial management. Legal risks, on the other hand, arise from non-compliance with laws and regulations, which could lead to penalties, lawsuits, or damage to the organization's reputation. Reputational risks involve actions or events that can harm the organization's image or brand, causing a loss of trust and credibility. Lastly, business risks encompass a wide range of potential threats, including competition, changes in technology, customer demands, and natural disasters. Recognizing and understanding these types of risks is crucial for organizations to effectively identify, assess, and mitigate potential threats.

Cyber risks

In today's technologically-driven world, organizations face a range of potential risks that could disrupt their operations and compromise sensitive data. Cyber risks, such as power outages, computer failures, and vulnerabilities in cloud storage, pose significant threats to both the security and continuity of businesses.

To safeguard against such risks, it is imperative for organizations to establish robust backup systems for their data, both offline and online. Traditional offline backups, such as tape drives or external hard drives, provide a failsafe in the event of power outages or computer failures. Meanwhile, online backups, particularly through secure cloud storage solutions, offer protection against data breaches and physical disasters.

Risk identification is a crucial step in the risk management process, which should be conducted at various times during a project's lifecycle. During agile project phases, for example, risk identification plays a vital role in ensuring that potential technology risks are identified and addressed proactively.

By implementing effective risk identification processes, organizations can identify and assess potential cyber risks, enabling them to develop appropriate risk mitigation strategies. From power outages to cloud storage vulnerabilities, understanding and managing cyber risks is essential for protecting critical data and maintaining business continuity in today's digital landscape.

Project risks

Project risks are potential events or circumstances that could have a negative impact on the successful completion of a project. These risks need to be identified and managed to ensure the project's objectives are achieved.

There are several types of project risks that project managers should consider. These include technical risks, such as issues with hardware or software; schedule risks, such as delays in project milestones or deadlines; cost risks, such as budget overruns; resource risks, such as staffing or skill shortages; and external risks, such as changes in regulations or natural disasters. Each type of risk requires specific mitigation strategies to minimize its impact on the project.

The potential impact of these risks on a project can vary greatly. Technical risks, for example, could result in system failures or data loss, leading to project delays or customer dissatisfaction. Schedule risks could cause delays in delivering the project, resulting in missed opportunities or penalties for late delivery. Cost risks could impact the project's financial viability or lead to budget constraints. Resource risks could reduce productivity or hinder the completion of project tasks. External risks could introduce new challenges or disrupt project activities.

Some common project risks that project managers should be aware of include scope creep, where project requirements continually change; lack of stakeholder engagement, which can lead to misaligned expectations; inadequate project planning, resulting in poor coordination and missed deadlines; and inadequate risk management, which leaves the project vulnerable to unforeseen issues. Identifying and addressing these common risks early in the project can help project managers effectively manage and mitigate their potential impact.

Financial risks

Financial risks are a crucial consideration for businesses, as they have the potential to significantly impact their operations and overall financial health. Effective risk management is essential in order to identify and mitigate these risks, ensuring the company's stability and sustainability.

One key financial risk is market risk, which refers to the potential losses that a business may face due to changes in market conditions, such as fluctuations in interest rates, exchange rates, or commodity prices. This risk can impact a business's profitability and cash flow, making it essential to closely monitor and manage market risks through appropriate hedging strategies.

Credit risk is another major financial risk that businesses face, concerning the possibility of customers or counterparties defaulting on their payment obligations. This risk can result in bad debts and liquidity issues for the business, affecting its ability to meet financial obligations and potentially leading to reputational damage. Implementing effective credit risk management practices, such as credit assessments and credit insurance, can help mitigate this risk.

Liquidity risk is the risk of a business being unable to meet its short-term financial commitments. Insufficient cash flow and lack of access to financing can severely impact a company's operations and ability to seize growth opportunities. It is crucial for businesses to maintain adequate liquidity and have contingency plans in place to manage liquidity risk effectively.

Operational risk relates to internal processes, systems, and human factors that can lead to financial losses or disruption of business operations. This includes risks associated with internal controls, technology failures, fraud, and human error. Strengthening internal controls and implementing operational risk management frameworks are necessary to mitigate these risks.

Legal and regulatory risk refers to the potential financial losses and reputational damage that a business may face due to non-compliance with laws, regulations, or industry standards. Failure to adhere to legal and regulatory obligations can result in penalties, fines, and lawsuits, which can have severe financial implications. Businesses must develop robust compliance programs and regularly monitor changes in legal and regulatory landscapes to effectively manage this risk.

Businesses face various financial risks that can significantly impact their operations and financial stability. Market risk, credit risk, liquidity risk, operational risk, and legal and regulatory risk are among the key risks to consider. Implementing appropriate risk management practices is essential to minimize the potential financial losses and protect the business's long-term success.

Business risks

Business risks encompass a wide range of potential hazards that can pose significant threats to a company's operations, financial stability, and reputation. These risks can vary depending on the nature of the business, industry, and external factors. It is crucial for CEOs and risk management officers to anticipate and prepare for these risks, regardless of the size of their business, to ensure long-term success and sustainability.

Some common types of business risks include:

1. Financial Risks: These risks involve factors that impact a company's financial stability, such as market volatility, credit defaults, liquidity constraints, and cost uncertainties. CEOs and risk management officers should implement robust risk management strategies and financial controls to mitigate these risks effectively.

2. Operational Risks: These risks arise from internal processes, systems, and human factors that can lead to financial losses or business disruption. Examples include technology failures, supply chain disruptions, employee errors, fraud, and inadequate internal controls. Implementing risk assessment processes, strong internal controls, and business continuity plans can help mitigate operational risks.

3. Legal and Regulatory Risks: Non-compliance with laws, regulations, or industry standards can result in severe financial losses and reputational damage. CEOs and risk management officers should stay updated on legal and regulatory changes, implement strong compliance programs, and conduct regular risk assessments to avoid penalties and lawsuits.

4. Reputational Risks: These risks are associated with negative publicity, customer dissatisfaction, or public perception that can harm a company's brand and reputation. Proactive reputation management, effective communication strategies, and strong customer relationship management can help mitigate reputational risks.

To anticipate and prepare for these risks, businesses should adopt a comprehensive risk management approach that includes risk assessment, risk identification, risk mitigation strategies, and regular monitoring and evaluation of risk mitigation measures. Additionally, engaging with industry experts, conducting scenario planning, and having a clear understanding of the company's risk appetite can further enhance risk management efforts. Regardless of the size of the business, CEOs and risk management officers must prioritize risk management as an integral part of their strategic decision-making process.

Natural disasters and external threats

Natural disasters and external threats present significant risks to businesses, impacting their location and operations. Some common natural disasters include fires, storms, floods, and earthquakes, each with the potential to cause property damage, disrupt supply chains, and jeopardize the safety of employees and customers.

Fires can destroy buildings and valuable assets, while storms and floods can lead to power outages, infrastructure damage, and inventory loss. Earthquakes can cause structural damage, making buildings unsafe for occupation. Additionally, poor city planning can increase the vulnerability of businesses to these hazards.

To mitigate these risks, businesses should employ several strategies. Firstly, conducting thorough risk assessments can help identify potential hazards and their impact on the location and operations. This information can inform decisions regarding the establishment or relocation of facilities.

Implementing robust emergency response plans, including evacuation procedures and communication protocols, is crucial. Regular training and drills can ensure employees are familiar with these protocols and can respond effectively during a crisis.

Furthermore, investing in preventive measures, such as fire suppression systems, flood barriers, and earthquake-resistant infrastructure, can reduce the likelihood and severity of damage. Additionally, having robust insurance coverage and strong relationships with suppliers and vendors can facilitate quicker recovery after a disaster.

Businesses must be proactive in identifying and mitigating risks associated with natural disasters and external threats. By taking preventive measures and implementing effective emergency response plans, businesses can minimize the impact on their operations and protect their employees, assets, and reputation.

Human errors and internal threats

Human errors and internal threats can significantly impact the success of a project or organization. These risks arise from within the organization and can be caused by individuals or systemic issues. Here are some types of human errors and internal threats:

1. Negligence: This occurs when individuals fail to follow established processes or neglect their responsibilities. For example, a project manager may forget to update project documentation, leading to confusion and delays.

2. Lack of communication: Poor communication within a team or across departments can lead to misunderstandings, missed deadlines, and poor decision-making. For instance, if team members do not communicate effectively, important project updates may not be shared, resulting in project delays.

3. Insider threats: These risks come from individuals within the organization intentionally causing harm. This could be through theft of sensitive information, sabotage, or unauthorized access to systems. Insider threats can have severe consequences, such as data breaches or damage to the organization's reputation.

4. Inadequate training: When employees are not properly trained, they may lack the necessary skills to perform their tasks effectively. This can lead to errors, rework, and project delays. For example, a software developer may not be familiar with a new programming language, resulting in subpar code quality.

Final thoughts

As managing risks becomes integral to organizations owing to the evolving threat landscape and regulatory requirements, risk identification is a key step in the risk management process. The 6clicks platform empowers organizations by bringing automation and AI into their risk management software. With a full range of features, including risk registers, a vast content library, automated risk assessments, and reporting tools, 6clicks helps in effective risk identification, risk treatment, and risk mitigation.


Know more about how 6clicks helps in streamlining risk management through powerful AI and automation.



Dr. Heather Buker

Written by Dr. Heather Buker

Heather has been a technical SME in the cybersecurity field her entire career from developing cybersecurity software to consulting, service delivery, architecting, and product management across most industry verticals. An engineer by trade, Heather specializes in translating business needs and facilitating solutions to complex cyber and GRC use cases with technology. Heather has a Bachelors in Computer Engineering, Masters in Engineering Management, and a Doctorate in Information Technology with a specialization in information assurance and cybersecurity.