Risk Assessments

Projen Professional Consultants Risk Assessment

Risk Assessment – Introduction

Every minute of the day, someone, somewhere is carrying out a Risk Assessment, whether it is health and safety driven, environmental or financial; Risk Assessments are part and parcel of modern day life.

We live in a blame culture with legal suits for negligence the norm. Without the risk assessment limiting/ mitigating the risk, more and more businesses and individuals would be going to court and being fined or even imprisoned for their lack of due care in not identifying a risk and limiting its potential impact.

What is Risk Assessment?

Risk Assessment/ Management is a structured approach to managing uncertainty and the threat that this uncertaintly may have for example, to safety, the environment and or your businesses finances. Risk assessment is carried out with the aim of highlighting those potential threats and implementing strategies / actions to thereby limit the threat should an adverse event take place.

Why is Risk Assessment important?

Risk assessment / management protect businesses by maximising opportunities and value whilst minimising the threat of uncertainty.

In practical terms, a risk assessment is a thorough look at your activities/ operations to identify those things, situations, processes, etc that may cause harm for example to people, the environment, and the financial stability of the business.

After the risk is identified it is important to evaluate how likely and severe the risk is, and then decide what measures should be in place to effectively prevent or control the “harm” from happening.

Risk assessment involves three main elements:

  • Identify the hazards,
  • analyse or evaluate the risk associated with that hazard, and
  • determine appropriate ways to eliminate or control the hazard

When people think of risk assessment, most automatically think of the Health and Safety Risk Assessment. Usual examples include a slip resulting from spilled liquid on the floor through to a fall from height when for example you are changing a light bulb.

By carrying out a risk assessment and thinking about the hazard and the associated risks, the risk of the slip caused by spillage can be greatly reduced. By publicising that if liquid is spilled it is mopped up immediately and making sure that a note is displayed to ensure that people are aware that the floor is wet are proven means to reduce the risk of injury.

Similarly, the risk of falling from height is eliminated by ensuring that people are made aware that they need to use the correct equipment when working above ground. The use of the correct equipment, i.e. using a ladder and not a chair in the process of changing the light-bulb will have been identified in a risk assessment as a means of reducing the risk of falling. The ladder when used as intended will provide greater stability than say a swivel office chair, thus mitigating the risk.

As a business, it is important that you limit your financial risk. For example a small manufacturer supplying a large established organisation with components may seem like a risk free relationship. However what would happen to the small manufacturer if through the bureaucracy of the large organisation, they did not get paid for their supplied products within the required time frame? More than likely if they don’t have a cash float at the bank they would go into liquidation.

Cash flow is the reason why many businesses cease to trade. They may have a good product and high sales, but the turnaround for getting the cash into the bank is too slow and therefore they cannot pay their creditors. In this example arranging an overdraft with the bank or being paid in advance by the large organisation would be a means of mitigating the risk.

Business is of course risky – but as demonstrated with the examples above it can be made less so. By carrying out a risk assessment and putting in place protection methods to limit the affect of the adverse event many risks are avoided all together.

The process of Risk Assessment

The risk assessment process should be systematic and logical and should be continual. There is no point carrying out a risk assessment just once as things change and therefore so do the associated hazards.

5 Steps to Risk Assessment

  1. Identify the Hazard
  2. Decide who/ what might be harmed and how
  3. Evaluate the risks and decide on precautions
  4. Record your findings and implement
  5. Review your assessment and update as necessary
Step 1 Identify the Hazard

Hazard: Anything with the potential to cause harm

Look for different types of hazard – this could include work activities, materials used, work equipment etc

Step 2 Decide who/ what might be harmed and how – consider people – (employees, members of public, contractors), liquidity, the environment, social impact, % market share
Step 3 Assess the risk of causing harm/ damage; this will enable you to ascertain whether an action can be taken to reduce the likelihood of this taking place.

This will involve monitoring and reviewing existing control measures and practices. The risk will always exist; however the risk assessment is put into place to help you decide whether you can put further processes in place to further reduce the risk. Risk assessments often prioritise the risks as low, medium and high. The assessment needs to be suitable to address the category of risk. It is important that staff are made aware and are trained in the procedure for controlling the hazard. For example the risk of back injury from lifting can be mitigated by staff being trained in safe manual handling practice.

Or the risk of an accounting scandal such as the one which resulted in the bankruptcy of Enron, can be mitigated through the adoption of Sarbanes-Oxley accounting standards.

Definition – Risk – the likelihood of the hazard causing harm/ damage.

Step 4 By carrying out the written risk assessment, it ensures that the process is systematic and consistent. It also provides a record of the process by which you have reached your conclusions. This will assist you in the monitoring of the systems that have been put in place to reduce (if we are looking at health and safety) of an injury for example.

If we stay with the health and safety example, a method of doing this may include a weekly checklist for a piece of equipment or a particular activity.

Step 5 The hazards that are associated with your business, from time to time may change, therefore it is essential that you review the risk assessments to ensure that they are still appropriate. Any changes must be communicated and training where necessary provided.

Risk Assessment Cycle

rs-risk-assessment-pic1

It is essential that you periodically review the risk assessments as things change and so do the hazards…

Benefits of Risk Assessment

There are a number of business benefits associated with the practice of risk assessment covering a cross section of activities from health and safety through to financial / environmental activities etc – these benefits include:

  • a reduction in injuries and ill health
  • a reduction in lost time
  • a reduction in claims
  • a reduction in insurance premiums
  • improved employee morale
  • more efficient processes
  • increased productivity
  • stakeholder satisfaction
  • prestige
  • legal compliance

It is too late to plan an effective response after an adverse event has occurred. The result from such an event can have serious effects on the viability of a firm’s operations, profitability, quality of service, and convenience. It is therefore essential that risk assessments are employed across the whole of the business and measures put into place to remove or lessen their effect.