This post discusses risk mapping in risk management. In this post, you will understand the meaning of risk mapping, risk heat map, and how an organisation can use a risk map to manage risks.

WHAT IS RISK?

Risk is the uncertainty of a financial loss. A risk exists where there is an opportunity for a profit or a loss. In terms of losses, we commonly refer to the risks as exposures to loss or simply exposures. Fire is an exposure. Defective products or defamation are liability exposures. The loss of business that results from a damaged building or tarnished reputation is also an exposure.

Risks can come from various sources, including uncertainty in international markets, threats from project failures (at any phase in design, development, production, or sustaining of life cycles), legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of uncertain or unpredictable root-cause.

There are two types of events which are:

1. Adverse events – i.e., risks or threats, and 

2. positive events – i.e., opportunities.

WHAT IS RISK MANAGEMENT?

Risk management identifies, analyses, and accepts or mitigates uncertainty in investment decisions. Organisations face many risks and must decide where to focus their mitigation resources. To handle or manage risks, organisations usually have the options to avoid, control, accept or transfer risk. The adverse effects of risk can be objective or quantifiable, like insurance premiums and claims costs, or subjective and difficult to quantify, such as damage to reputation or decreased productivity. By focusing on risk and committing the necessary resources to control and mitigate risk, a business will protect itself from uncertainty, reduce costs, and increase the likelihood of business continuity and success. A risk map helps improve an organisation’s risk management system.

WHAT IS A RISK MAP?

Risk mapping helps organisations identify, prioritising, and quantify (at a macro level) risks to an organisation. A risk map, or a risk heat map, is a data visualisation tool for communicating specific risks an organisation faces. A risk map is a graphical depiction of a select number of a company’s risks designed to illustrate the impact or significance of risks on one axis and the likelihood or frequency on the other. This representation often forms a two-dimensional grid with frequency (or probability of occurrence) on one axis and severity (or degree of financial impact) on the other axis; the risks that fall in the high-frequency/high-severity quadrant are given priority risk management attention. 

A risk map helps companies identify and prioritise the risks associated with their business. A risk map aims to improve an organisation’s understanding of its risk profile and appetite, clarify thinking on the nature and impact of risks, and improve the organisation’s risk assessment model. A risk map is often presented as a two-dimensional matrix in the enterprise. For example, the likelihood that a risk will occur may be plotted on the x-axis, while the impact of the same risk is plotted on the y-axis.

BENEFITS OF RISK MAP (RISK HEAT MAP)

A risk map offers a visualised, comprehensive view of the likelihood and impact of an organisation’s risks. This helps the organisation improve risk management and governance by prioritising risk management efforts. 

Risk heat maps can offer significant benefits to organisations. Here are some of the benefits of using risk heat maps by an organisation:

1. A visual, big-picture, holistic view that can be shared to make strategic decisions.

2. Improved management of risks and governance of the risk management process.

3. Increased focus on risk appetite and the company’s risk tolerance.

4. More precision in the risk assessment and mitigation process. and

5. Greater integration of risk management actions across the enterprise.

IMPORTANCE OF RISK MAPPING BUSINESS ORGANISATIONS

Risk maps are a valuable tool as they assist organisations to:

1. Understand the risk environment

2. Prioritise mitigation strategies

3. Effectively allocate limited resources

4. Receive better insurance premiums

KEY CONSIDERATIONS FOR RISK HEAT MAPPING

Using a practical cybersecurity risk heat map, here are key considerations for risk heat mapping:

1. What are the most critical systems and information assets a firm wishes to map?

2. How accurate is the data, and where is it coming from?

3. What is the organisation’s appetite for risk?

4. What categories and levels of impact would be considered material (i.e., monetary, brand reputation and other related impacts)?

5. What is the acceptable variance, including the firm’s crucial performance and operating metrics? and

6. How would the organisation define terms to integrate potential risk events with your heat map?

HOW TO BUILD A RISK MAP

A risk map is built by plotting the frequency of a risk on the y-axis of the chart and the severity on the x-axis. Frequency is how likely the risk is or how often you think it will occur; severity is how much of an impact it would have if it did happen. The higher a risk ranks for these qualities, the more threatening it is to your organisation. Let us discuss tips on how to build a risk map.

Here are four tips on how to build a risk map:

1. Involve people from all parts of the organisation

2. Understand each risk. You must assess each scenario with a strong understanding of the business and how the risks can impact your ability to continue operations. 

3. Seek guidance. If consulting those within the organisation isn’t providing a sufficient understanding, look elsewhere. 

4. Revisit and modify. Revisit and review the firm’s rankings with the risk management team regularly.

MAJOR WAYS OF USING RISK MAPPING AND HEAT MAPS BY AN ORGANISATION

Here are three significant ways to use risk heat maps by organisations:

1. Risk impact heat map to show the likelihood of a risk event happening vs the business impact of such an event.

2. Comparing breach likelihood across different business areas.

3. Mapping the firm’s assets inventory by type and risk associated with each category.

See a video on Risk Mapping in Risk Management: https://youtu.be/34CHJnrmaLo