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Important Risk Management Metrics To Keep In Mind

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Risk management professionals can easily get lost in the mounds of data and dashboard surfing. A lot of data can be very useful, but it is important to know what is notable and what is not. Important metrics and data points can prove to have a lot of value when making operational decisions that could affect your company’s tolerance of risk. Next time you sign on to use your risk management tools, take a look at these important metrics. 

Risk Identification 

It is important to understand what your organization identifies as a risk and how many risks are identified on a routine basis. This should be one of the easiest metrics to measure using your risk management tools. There is no ideal amount of risks you should have identified pertaining to a particular project or business unit. A business unit, process, or project that has been performed many times usually will have a consistent number of risks associated with it. However, the number of risks for a particular project or process can be useful when compared to a new venture. Understanding the number of risks with a similar project can help with accurately predicting and preparing for risks with something new. 

Risk Occurrences 

To go with keeping an eye on the number of risks associated with a particular event, it is important to keep track of what risks actually occur. Hopefully, there isn’t a lot in this category. As always, it is important to keep track of risks that materialize so your organization can learn what risks could’ve been minimized or even prevented. On top of this, it is important to see which risks occurred more than once. A risk that is frequent usually means that there is a fundamental issue with the process or projects or an externality that affects the outcome frequently. A risk that is frequent should be closely looked at.  

Predicted Severity And Actual Severity 

Predicted severity and actual severity should be assessed after a particular risk materializes. Predicted severity describes the damage that your company plans for with a particular risk. Actual severity describes the damage that actually occurs when a risk takes place. Now, predicted severity and actual severity will very rarely ever match up perfectly. It is important to compare the two to try to see if your algorithm can become more accurate which leads to better preparation for risks in the future. If your predicted severity and actual severity are never remotely close, it is important to reevaluate how you predict risks. 

Risk Prevention 

Lastly, it is important to keep track of risks that have been avoided or closed out. This metric gives you insights into how you’re doing in terms of mitigating risks and preventing them. A large number of identified risks and no closed risks usually show that the risk management practices are dropping the ball or you have hit your peak. A fun fact is, no organization can ever truly hit its risk management peak, so it’s usually the latter. 

I hope this helps!

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