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Volume 30, Issue 1

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Friday, 04 October 2013 16:35

The Limitations of Traditional Risk Assessments

Developing risk maps, heat maps and risk rankings based on subjective assessments of the severity of impact of potential future events and their likelihood of occurrence is common practice. These approaches provide an overall picture of the risks, seem simple and understandable enough to most people, are often the result of a systematic process and provide a rough profile of the organization’s risks.

Typical attributes of a risk map include: governing objectives drawn from a business strategy or plan that provides a context for the assessment, a common risk language that provides a perspective for understanding risk and predetermined criteria for conducting an assessment. While everyone agrees that an effective risk assessment should never end with just a list of risks, it is not unusual for traditional risk assessments to hit a wall, leaving decision makers with a list and little insight as to what to do next. In addition, there is the common complaint that risk assessments rarely surface an “a-ha!” that alters senior management’s view of the world.