The IT Risk Matrix

A risk matrix is an illustrative tool used in risk management to assess and prioritize risks visually based on their likelihood and impact of an event. Mostly, it is represented as a grid, with the likelihood of an event occurring on one axis and the impact of that particular event on the other axis. Before a representation of the matrix is decided upon, key risks are identified, analyzed and evaluated. This is done through an IT risk assessment exercise that we have explained in the article IT Risks Assessment. Each individual risk is then plotted inside the matrix as per the already estimated likelihood and impact.

Terms

Likelihood: This is the probability of an event (a risk) occurring. It can be assessed based on analysis, recorded or referred historical data or expert judgment. Low, medium and high are common categories for likelihood, although in an extended matrix that we will show later, relative adjectives are used.

Impact: This is the severity of the consequences and aftermath should the risk event occur. The impact vary from one entity to another depending on the nature of business. Generally, some impacts include law suits, physical harm to people, damage to reputation, environment degradation, loss of property and financial loss. Impact is often categorized as rare, possible or certain. Some terms such as negligible, moderate or likely can also be used.

Risk Prioritization: The risks have been identified through the IT risks assessment and are plotted on the matrix prioritized based on the position. Depending on the structure of the matrix (others tend to interchange the axes to cater for elongated descriptions), risks placed in the lower bottom of the matrix (high likelihood, high impact) are typically considered very critical and require urgent attention and mitigation efforts. Whereas risks in the upper-left quadrant (low likelihood, low impact) are often considered less urgent and may be decided to be monitored rather than actively managed. Again, depending on the structure, the high likelihood, high impact section can be at the upper-right quadrant of the matrix and low likelihood, low impact at the bottom left. It all depends on the focal point of arranging the impacts and likelihood.

Normally as stated above, the impact and likelihood or probability dictate the layout of the matrix. Some organisations go a step further and quantify the risks  in respect to financial losses, disruption of services and effect to the environment or people. It largely depends on the nature of the work or business of the organization. Other organisations separate the details and feature them in IT Risk Register. The matrix can be inform of 3 by 3  or 5 by 5 layout, the latter being more detailed and easy to comprehend. A risk score is derived at by doing simple multiplication of the targeted cells. Here is a typical example;

Key

Here, we are able to observe that the more likelihood a risk may occur and the higher the impact, such risks will have to be given the highest priority on mitigation. Then there are situations where risks do exist but the likelihood of its occurrence and the impact are low. Such risks needs just to be monitored and reviewed regularly.

Benefits of using the risk matrix

Risk Profile Clarity – The organisation is able to have a real-time view of the ever evolving risks thus help organizations to clearly understand their exposure to several IT threats. This enables them to prioritize risks effectively and allocate resources on the mitigation accordingly by ensuring focus is placed on areas with the greatest potential for harm.

Improved decision-making and prioritization: With a further clear understanding of likelihood and impact of risks, the management or authority can make more informed choices and resolution about resource allocation to IT security measures and budget for risk mitigation strategies.

Communication and cooperation: With the simplified version, departments can now have a modest understanding of the IT risk therefore ease communication between different sections or units within an organization. This is because it provides a common ground and language for deliberating IT risks and expediates collaboration on risk management efforts across-the-board.

Risk mitigation: By actively identifying, evaluating and reviewing the known threats and overall risks, the organization can take measures to mitigate them before they actualize. This definitely prevent data breaches, systems disruptions, law suits and other negative consequences.

Regulatory compliance: Many industries as seen in IT Risks Assessment article have regulations and policies that require organizations to have a risk management plan and compliance checks in place. This  IT risk matrix is a valuable instrument for affirming compliance with the set regulations.