Risk matrix: the ultimate guide for your company


risk matrix


Mistakes can happen in every business. After all, making a wrong choice or decision may lead to different negative impacts. However, the worst thing that could happen to a company is to keep making mistakes instead of taking action to avoid them. 

Do you know what a risk matrix is and why it is so important?

A risk matrix is one of the key strategies in the risk management area, and it’s used to help companies to prevent and predict problems. 

This article will explain what the risk matrix is and how to put it into practice, plus, we’ll talk about the benefits of this method, which is considered the recipe for success in business management.

What is a risk matrix?

A risk matrix is a management tool that helps to visualize possible risks. This method helps business managers during the decision-making process.

The risk matrix has been widely used by many companies, as it is a practical and easy to use tool. It helps most organizations to promote robust discussions, be more consistent in prioritizing actions that may lead to risks, and focus on what really should be prioritized.

This methodology allows businesses to evaluate risk easily using charts. In other words, the risk matrix is mainly used to determine the “size” of a risk and if that risk is under control or not.

Regarding what is a risk matrix, it is important to understand that it has two dimensions: 

  • analyzing how severe an event is;
  • how likely and unwanted an event is. 

Combined, both dimensions create the graphic matrix where the events take place. 

After finding out what the risks are,  a manager can create preventive measures and develop a strategic plan to prevent them from actually happening.

Check out this image for reference:

Risk matrix: the ultimate guide for your company

Source: University of Newcastle

Creating your risk matrix

Once you understand what a risk matrix is, the need to work with probabilities and impacts to define the severity of an issue becomes clear. So let’s get our hands dirty and build your matrix!

Describe the probability and severity levels

First step is to understand -in terms of probability and severity- whether a given risk is defined as high, medium or low. 

As a result, future risk assessments will be much easier to perform.

  • Probability

      – likely to happen in 50% of cases;
      – under similar circumstances, it happens quite often;
      – occurs multiple times during a project;
      – 10% up to 50% chance of happening;
      – this event is expected to happen, but not frequently;
      – Less than 10% chance of occurring;
      – Not a common event, it has never occurred in your company, but could have;
      – Even though it wasn’t mapped out, it could happen.
  • Impact
      – repair or replacement costs represent a large part of monthly profit;
      – high chance of causing serious or disabling harm to employees;
      – may generate a long pause in operations;
      – repair or replacement costs represent an important portion of monthly profit;
      – injury that requires medical services with or without compromising working hours;
      – loss of the business capability for a short period of time;
      – low costs of repair or replacement;
      – cause no injuries or, if it does, they require only first aid;
      – small break in company’s processes.

A risk matrix may reach a higher level of complexity and include further probability and impact levels.

Set up a score

Now you know what a risk matrix is and what each level means. The next step in building your matrix is to assign probability and impact scores to every action you want to perform in your enterprise. Thus, you will find out what risk activity represents for the business and build a proper action plan for it.

Thus, once these criteria are established, defining what incidents, events or conditions represent a risk to the business will become much easier.

Attention! The risk matrix is relatively easy to build and understand. However, you must be careful when assigning these scores; as in all planning and risk management efforts, managers are the ones who know best which areas represent greatest risk.

Using this tool to support the company’s management will not only reduce the likelihood of the risk, but also the impact magnitude on the operations.

Furthermore, it provides timely data that quantifies threats and makes it much easier for the organization to take some action before any problems arise.

Have you ever heard of the GUT Matrix? It is similar to a risk matrix, although it focuses on prioritizing actions. Read this article to learn more about it: How to use the GUT matrix.

4 reasons why every manager should use a risk matrix

Unfortunately, a lot of companies still insist in making business without performing a formal risk assessment. Not having a team responsible for evaluating risks is quite common in some organizations and this directly affects the definition of an action plan.

We are so used to taking unnecessary risks, whether personally or professionally, that the tendency is to ignore small risks and only react when they occur. That’s why effective risk management brings a huge advantage for companies that are concerned with preventing issues.

4 benefits of using a risk matrix

  1. It brings an overall perception to risk assessments for all departments within the organization;
  2. You can prepare in advance for those actions that don’t have complete data and numbers yet;
  3. It allows to adjust the risk criteria to match the circumstances of each business;
  4. Takes into consideration all the possible variables in a company.

Next steps

A risk matrix is key for organizations. After all, defining risk levels helps managers and analysts understand the consequences of their actions and how they impact the company as a whole. 

Now that you have learned what a risk matrix is, you can get to work and perform it yourself. Our goal is to help you run an organized and planned administration.

So, what’s the next step? Knowing STRATWs ONE, our robust, strategic and intuitive corporate performance management software. It helps managers to monitor performance indicators of processes, teams and people, as well as evaluate the current situation in a fast and reliable way. 

Do you want to conquer your goals and optimize your time’s vision?Learn more about STRATWs One and transform your company’s management. Request a free demo:

demon Risk matrix: the ultimate guide for your company