What Is a Risk Assessment? + Key BI Tools to Accelerate It

Risk assessment is a vital process that helps a company understand any risks associated with different business activities, decisions, and projects so they can avoid unnecessary harm. It's a key part of risk management and, as such, can often be a part of a business intelligence team's work.

In this article, we'll discuss what's involved in a risk assessment, how to conduct one, and common risk management methodologies. Afterward, if you're interested in learning more about business intelligence or pursuing a career in the field, consider enrolling in the IBM Business Intelligence (BI) Analyst Professional Certificate, where you'll learn to generate valuable insights through data warehousing, profiling, and evaluation.

What is a risk assessment and what is it used for?

A risk assessment is an important process that often involves using data to understand the various risks a company may face when embarking on a new project, decision, or activity. This can include identifying the risk itself, assessing its potential impact, and then communicating any findings to key stakeholders.

Company leaders and decision-makers must understand potential risks when making crucial business decisions. Risk assessments are useful because they can minimize (or outright prevent) risks that may have a negative impact. After identifying specific risks, companies can use this information to determine whether or not to pursue a product or investment—or adjust their approach altogether.

Who uses risk assessment?

Many companies, especially larger ones, use risk assessment to help them discover trends and weaknesses in their businesses and give them key information to work toward a solution proactively. Depending on the size of the company, this might be handled by a risk management team composed of risk analysts or by a risk manager.

Business intelligence tools for risk assessment

Still, the amount of new technology and fast-paced changes in industries mean that humans might miss important signs. While all companies deal with hazards, some industries, such as finance, construction, software engineering, and manufacturing, face more serious risks and benefit significantly from risk assessment programs.

Business intelligence (BI) tools—typically used to collect, sort, and analyze data—can strengthen a company's risk management efforts. Thanks to the growing challenges businesses face, avoiding risks altogether may not be possible in this day and age, but risk management can help companies handle them effectively. BI tools accelerate those possibilities.

BI tools can be applied to the four steps of risk management: risk identification, assessment, treatment, and monitoring/reporting. They use predictive analytics to find patterns that may lead to risks, allowing companies to take preemptive action to protect the business.

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4 types of risk assessment

The type of risk assessment you conduct for your business will depend on how you measure potential risks for the company. Businesses typically measure risk in different ways: financial, operational, strategic, or legal. Let's review each one.

1. Financial risks

All businesses depend on cash flow, and when a financial risk compromises that, it directly impacts your company’s financial obligations. Financial risks can include delinquent clients, market conditions, or mismanagement of funds. A financial risk assessment can help you figure out where the possibility of risks exists and base your business decisions on this information. Once you determine the possibilities of financial risks using a business intelligence tool, you can proactively create a plan to manage them. 

2. Operational risks

Operational risks can negatively affect the performance of your business. These can occur because of incompetence or failure in your company’s internal processes, employees, or systems. Other causes include external elements like hackers, fraud, or cybersecurity attacks. Using an effective operational risk management program in business intelligence can eliminate or minimize the risks of daily operations. Tools are available to help create an internal control process, organizing operational risks into categories to make potential risks easier to determine.

3. Strategic risks

Companies face two types of strategic risks: business and non-business risks. Business decisions made by upper management, such as poor judgment in expanding into new areas or creating new products that the market doesn’t want, can cause business risks. While they may be external, non-business risks can also affect a company’s strategic objectives. These include the state of the economy, a competitor’s success, and changes in consumer demand. A strategic risk management program that monitors strategic risks can be valuable for minimizing or avoiding these risks.

4. Legal risks

Regulatory and compliance issues are constantly changing in the ever-changing world of technology, and if you don’t stay current, this can lead to serious legal risks for your company. Because of these potential risks, your business can face more than just a fine. These risks have ramifications that can damage the brand’s overall reputation and ability to grow. When companies don’t comply, the financial risks can be detrimental. Some regulatory rules that your company must follow include data security, compliance with the Fair Labor Standards Act, updating bylaws, providing stock options, and adhering to tax requirements. To minimize financial risks, your company must stay abreast of new risk areas by assessing any recent changes or updates regarding required regulations and rules.

3 common risk management methodologies

After assessing common risks your company faces, decide which methodology works best to eliminate the risk. Depending on the circumstances, you may consider using more than one methodology. Let’s examine three standard options.

1. Quantitative risk management

Assigning dollar values to risks and assets makes it simpler to perform a cost-benefit analysis and present your findings to leadership and other stakeholders. However, this methodology only works well with data that you can quantify.

2. Qualitative risk management

This methodology strives to understand the potential ramifications of risks on organizational operations. While quantitative methodologies take a scientific, mathematical approach, qualitative methods rely on the assessor's opinions of potential hazards and whether they are high, medium, or low.

3. Vulnerability-based risk assessments

This methodology provides a view of potential threats and weaknesses beyond the organization's assets. For example, penetration testing, a standard cybersecurity measure, explores system vulnerabilities to identify potential threats outside those systems and the possible consequences.

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How to get started in risk assessment using business intelligence

Business intelligence tools, such as Microsoft Power BI, Tableau, and QlikSense, are key to getting started in risk assessment. Risk assessment begins with gathering data, which you can then use to query, sort, and identify risks. With this information, businesses can make risk management decisions based on the risk assessment findings.

1. Organize your data.

Collect all your data and make sure it is easily accessible to all of your risk analysts. To ensure accuracy, make sure that your data is accessed as close to real-time as possible. Classifying your data by order of importance is also key so it is organized and easier to assess.

2. Create data compliance.

Stay on top of any changes or additions to your business's regulatory requirements, which can give you a clearer idea of what data you need. Having a plan that addresses the dangers of liability keeps the workplace safe and provides financial security for both your business and your investors.

3. Identify risks for your business. 

Determine whether the potential risks to your business are internal, such as ineffective business processes or operating costs, or external, such as changes in the economy or business regulations. Use risk analytics to determine, monitor, and address both areas of data so you can be proactive for any risk, regardless of where or why they occur.

4. Use data analysis to quantify risks.

Translate the potential impact of a risk into numerical terms. By quantifying the cost and time as a percentage in a specific area, businesses can determine the impact of the total risk by numbers. Quantifying risks can help you better understand the financial repercussions by calculating the chances of the occurrence of a risk multiplied by the cost of the project.

5. Visualize and assess the risk.

Once you assess your business’s risks, using visual materials will help your data findings become more understandable and a valuable tool to share with key decision-makers within the company so they can comprehend the information. By visualizing risks and ways to minimize or avoid them, your company gets a clearer idea of what they are potentially dealing with and how to form an actionable plan.

Risk assessment: benefits and considerations

Performing risk assessments is vital in many ways and offers numerous advantages. However, like anything else, you may also find potential factors to consider.

Risk assessment benefits

In addition to helping companies identify and manage risks and developing a proactive plan to respond to the risks, other significant advantages of risk assessment in business intelligence include having the capacity to review a large amount of data quickly to find any signs of risk. Additional benefits include the following:

• Speed: Humans cannot process the volume of information at such a speed, so risk assessment programs save time, money, and resources. 

• Increased objectivity: Risk assessment also allows companies to view possible risks and the subsequent repercussions objectively instead of relying on opinions, which can miss key trends.

• Broader scope and view: Risk management in business intelligence lets businesses thoroughly monitor all aspects of their company, giving a comprehensive look across all areas instead of individual departments.

Risk assessment considerations

While risk assessment in business intelligence helps companies predict and proactively prepare for possible risks, it can also create some challenges.

• Resources: For risk assessment to work, companies must allocate much time and resources to the process. To ensure the process runs effectively, your business should devote ample time to prepare for it. Otherwise, you may not benefit from the full assessment and may miss at-risk areas.

• Secure data: The data that is gathered must be secure from the beginning of the process. Because you are likely handling private company data, it's important that you take steps to ensure its ongoing security.

• No single method: There's no single standard method for your company to follow when it comes to assessing risks, which may cause the presumption of underestimating the scope of potential problems. While you can choose from various methods of risk assessment tools, make sure yours takes into account extreme circumstances, not just the probability of risks in your daily operations.

Learn about business intelligence on Coursera

All companies face potential risks. To build your skills related to risk assessment and business intelligence tools, consider the following programs.

• Explore the subject matter with the four-course New York Institute of Finance's Risk Management Specialization. You'll learn how to measure, assess, and manage risk in your organization.

• Develop job-ready skills with the IBM Business Intelligence (BI) Analyst Professional Certificate, where you'll learn how to apply statistical analysis methods to identify trends, create visualizations, and build dashboards using Tableau, Excel, Cognos, and Looker.

• Advance in your career with the IBM Generative AI for Business Intelligence (BI) Analysts Specialization, where you'll learn more about the impact of AI on BI and develop effective prompts using prompt engineering approaches and techniques.