Risk identification, as outlined in the guideline for establishing an enterprise risk management system, is a fundamental aspect of ensuring compliance with regulatory standards and protecting corporate assets. To effectively identify risks, the following steps can be followed:

Steps for Identifying Risks

1- Understand the Regulatory Environment:

• Review both internal and external regulations and policies related to the company.
• Analyze the industry and competitive environment to understand external risks that could impact the company.

2- Review Processes and Procedures:

• Examine internal processes and.Procedure report to identify potential vulnerabilities.
• Analyze workflows to pinpoint areas where errors or fraud may occur.

3- Assess Internal Control Systems:

• Review existing control systems to evaluate their effectiveness.
•  Identify gaps in controls that could allow risks to materialize.

4- Engage with Management and Employees:

• Conduct interviews and meetings with management and staff to understand their concerns and perceptions about risks.
• Use surveys and questionnaires to gather additional insights into potential risks.

5- Analyze Financial and Non-Financial Data:

• Analyze financial reports to detect any unusual or unexpected trends.
• Monitor non-financial data, such as customer satisfaction and productivity, to identify signs of potential risks.

6- Utilize Risk Analysis Tools and Models:

• Apply tools such as SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis and the Pareto principle to identify and prioritize risks.
• Use a risk matrix to evaluate the likelihood of risks and their impact on the company.

7- Review Past Events:

• Study previous events and failures to identify patterns and lessons learned.
• Analyze past internal and external reports that address incidents and risks.

Types of Risks

• Strategic Risks: Related to strategic decisions, such as entering new markets or developing new products.
• Operational Risks: Related to daily operations, such as production disruptions or system failures.
• Financial Risks: Related to financial management, such as exchange rate fluctuations or credit risks.
• Compliance Risks: Related to non-compliance with regulations and laws, 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 these tools, internal auditors can effectively identify risks and ensure that the company is prepared to face 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 helps manage risks effectively by providing a comprehensive view of risks and guiding management decisions.

Components of a Risk Matrix

1- Axes:

• The horizontal axis (X) represents the likelihood of risks occurring, typically ranging from "low" to "high."
• The vertical axis (Y) represents the impact of risks, also typically ranging from "low" to "high."

2- Cells:

• The matrix is divided into cells that indicate the level of risk (low, medium, high).
• Each cell represents a specific combination of likelihood and impact.

Steps to Create a Risk Matrix

1- Identify Risks:

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

2- Evaluate Likelihood and Impact:

• For each risk, assess its likelihood (e.g., on a scale from 1 to 5).
• Assess its potential impact on the company (e.g., on a scale from 1 to 5).

3- Map Risks on the Matrix:

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

4- Analyze the Results:

• Prioritize risks in the red areas (high likelihood and impact) for urgent action.
• Pay attention to risks in the yellow (medium) and orange (high likelihood or impact) areas.

Benefits of a Risk Matrix

1. Prioritization: Helps identify risks that require immediate response and careful management.
2. Enhanced Communication: Provides a visual tool for communicating with senior management and stakeholders.
3. Improved Planning: Assists in planning preventive strategies and corrective actions.

In conclusion, using a risk matrix effectively can be a powerful tool for improving risk management and ensuring the company's sustainability in the face of future challenges.