Risk Identification for Protecting Company Assets, according to the Enterprise Risk Management Guide, is an essential part of your business’s mission to ensure compliance and regulatory standards, as well as protect corporate assets. To effectively identify risks, follow these steps:

Steps for Risk Identification

1. Understanding the Organizational Environment:

   • Review internal and external regulations and policies related to the company.

   • Analyze the industry and competitive landscape to understand external risks that may impact the company.

2. Reviewing Processes and Procedures:

   • Examine processes and Report procedures to identify vulnerabilities.

   • Analyze workflows to detect areas prone to error or manipulation.

3. Evaluating Internal Control Systems:

   • Review current control systems to determine their effectiveness.

   • Identify control gaps that could allow risks to materialize.

4. Engaging with Management and Staff:

   • Conduct interviews and meetings with management and employees to understand their concerns and perceptions of risks.

   • Use surveys and questionnaires to gather additional insights on potential risks.

5. Analyzing Financial and Non-Financial Data:

   • Analyze financial reports to identify unusual or unexpected trends.

   • Monitor non-financial data such as customer satisfaction and productivity to detect risk indicators.

6. Using Risk Analysis Tools and Models:

   • Apply tools such as SWOT analysis and Pareto analysis for effective Risk Identification and prioritization.

   • Use a risk matrix to evaluate the likelihood and impact of each risk on the company.

7. Reviewing Past Incidents:

   • Study past events and failures to identify patterns and learn from them.

   • Analyze previous internal and external reports that address incidents and risks.

Types of Risks

• Strategic Risks: Related to strategic decisions like entering new markets or developing new products.

• Operational Risks: Linked to daily operations, such as production disruption or technical system failures.

• Financial Risks: Concerned with financial management, such as currency fluctuation or credit risks.

• Compliance Risks: Associated with failure to comply with laws and regulations, such as legal or regulatory risks.

• Environmental and Social Risks: Related to environmental and social factors that may affect the company.

By following these steps and using the mentioned tools, internal auditors can perform Risk Identification effectively and ensure the company is prepared to handle potential challenges.

Risk Matrix

A risk matrix is a visual tool used to assess and prioritize risks based on their likelihood and impact on the company. This tool supports effective risk management by offering a comprehensive view of risks and guiding managerial decisions.

Components of the Risk Matrix:

1. Axes:

   • Horizontal Axis (X): Represents the likelihood of a risk occurring, usually classified from “Low” to “High”.

   • Vertical Axis (Y): Represents the impact of the risk, also typically rated from “Low” to “High”.

2. Cells:

   • The matrix is divided into cells indicating different risk levels (Low, Medium, High).

   • Each cell represents a specific combination of likelihood and impact.

Steps to Build a Risk Matrix

1. Risk Identification:

   • Compile a comprehensive list of potential risks that the company may face.

2. Assessing Likelihood and Impact:

   • For each risk, evaluate the probability of occurrence (e.g., from 1 to 5).

   • Assess its potential impact on the company (e.g., from 1 to 5).

3. Plotting Risks on the Matrix:

   • Place each risk in the appropriate cell based on its likelihood and impact evaluation.

4. Analyzing Results:

   • Identify risks in the red zones (high likelihood and high impact) for immediate action.

   • Pay attention to those in yellow (medium) and orange zones (either high likelihood or high impact).

Benefits of the Risk Matrix

• Prioritization: Helps identify risks requiring immediate response and close management.

• Enhanced Communication: Offers a visual tool for communicating risks with senior management and stakeholders.

• Improved Planning: Supports planning of preventive strategies and corrective actions.

In conclusion, when used properly, the risk matrix can be a powerful tool for enhancing risk management and ensuring a company’s resilience in facing future challenges. Effective Risk Identification combined with structured analysis not only protects organizational assets but also fosters a proactive risk-aware culture.