Discover the risk assessment matrix, how it benefits companies managing risks, the different types, and how to use the risk matrix to reduce health, safety, financial, and business risks. A recent American Institute of CPAs (AICPA) report found that 65% of senior executives agree that risk oversight has changed significantly and the implementation of strategic risks management is pivotal.

The risk matrix is the cornerstone of formally scoring the severity of consequences associated with any hazard or risk in the workplace, whether financial, operational, environmental, or health and safety. Risk matrices prioritize risks to define improved mitigation strategies within efficient management plans. Understand the risk assessment matrix and the world becomes your oyster.

What Is the Risk Assessment Matrix?

A risk matrix helps assessors and business owners measure the probability and severity or impact of risks using grids to measure the two factors against each other, providing a risk rating that guides which control measures should be implemented in the risk management plan.

The risk matrix is important to the risk assessment process to ensure assessors can prioritize risks and use efficient mitigation technique. Meanwhile, using risk assessment technology has its benefits. Discover more about the role of technology in transforming risk assessments and inspections.

Why Is a Risk Matrix Important?

An effective risk matrix used in risk assessments can reveal any threats to operations management, health and safety, resources, and physical equipment. Furthermore, the risk scoring matrix helps businesses maintain environmental, health, and safety (EHS) compliance.

The Occupational Health and Safety Administration (OSHA) has regulatory standards employers must follow to maintain compliance in any industry, with health and safety management being core elements. OSHA outlines that careful steps must follow hazard identification to implement compliant controls.

Navigating health and safety compliance in the digital era is one of the key reasons to use a risk matrix risk assessment. However, there are more ways a risk ranking matrix benefits organizations:

• Simplifies risk levels on a visual foundation
• Reduces the need for time-consuming quantitative analyses
• Provides data-driven insights to reduce risks
• Defines strategies to combat economic change
• Keeps employees safe, healthy, and productive

How Does the Risk Assessment Matrix Work?

The risk matrix calculates a risk score to determine the likelihood and risk impact leading to potential consequences for employers, employees, and site visitors. Risk ratings also outline how fast employers should act to prevent future incidents and improve health and safety within the organization.

For example, employers learn to eliminate a potential hazard showing a high-risk rating. The risk matrix works in a company’s favor, saving money and time while improving productivity. Save time, reduce costs, and get more done by using the risk matrices in the Velappity mobile app.

Different Risk Matrices Used in Risk Management

Three risk assessment matrices are widely used to assess risks based on likelihood and severity, resulting in risk ratings that help risk assessors determine the best controls and outcomes.

What Is a 3×3 Risk Level Matrix?

The 3×3 risk assessment matrix template allows risk assessors to determine the likelihood and consequences of any risk event should it occur. It’s commonly used for risk assessments in industries with typically low risks as the risk rating isn’t as comprehensive as others.

The simple 3×3 risk matrix is a grid with rows measuring the probability into unlikely, likely, and very likely. Furthermore, the columns measure the risk consequences as moderate, high, and extreme. Assessors prioritize risks with a very likely and extreme combination as a potentially serious risk event.

What Is a 4×4 Risk Matrix?

The 4×4 risk matrix template improves how accurate controls and risk management plans are addressed by categorizing and prioritizing the severity and probability into more rows and columns. The 4×4 risk assessment grid is the popular risk and controls matrix (RACM). The four rows of probability include a rating from one to four based on whether the event is improbable, remote, probably, or frequent.

The four columns rate the severity of a risk event from one to four based on whether the consequences would be negligible, marginal, critical, or catastrophic. A risk rating would calculate the total between columns and rows, resulting in a figure determining the implemented control measures. A risk event with a frequent occurrence that results in catastrophic consequences would be the highest risk.

What Is the 5×5 Risk Matrix?

The 5×5 risk assessment matrix template allows risk assessors to visualise risk probability and impact in a grid. The probability rows score from one for rare to five for almost certain. The columns score the impact, starting from one for insignificant to five for severe. A probability score of five combined with an impact score of five would result in the maximum threshold risk score of 25.

The columns and rows are also color-coded to match the severity of minor or severe consequences. Meanwhile, a total of four is acceptable, while 10-16 is tolerable with controls and anything above is critical and must be addressed quickly and efficiently as they could lead to serious consequences, including high-level business risks and death. Risk assessors also use these scores to prioritize risks.

How to Use a Risk Matrix in the Risk Assessment Process

Let’s use the 5×5 risk matrix for the purpose of our step-by-step guide to enhance any organizational risk management framework. The risk assessment matrix enables a proactive risk mitigation plan, regardless of which risk matrix employers or assessors implement. For this scenario, we use the 5×5.

Step 1 – Identify the Risk Landscape

Identify risks based on any historical risk event, potential risks outlined by employees, project risks, operational risks, business risks, legal risks, or health and safety risks in the risk assessment stage. Implement risk assessments to define new hazards to identify potential risks.

Additionally, host brainstorming sessions with all stakeholders to identify risks, even obvious and less-obvious hazards within the workplace. Conduct a thorough risk assessment to identify risks associated with operations, functions, workers, equipment, property, business objectives, and even external factors.

Complete a risk assessment form on Velappity with multiple risk matrices available for rating the risks. Gather information from all stakeholders, including senior and junior-level employees. Define the project scope for your risk assessment before using a risk matrix.

Common Types of Risks With Examples:

• Business Risk – New manufacturing processes or significant changes to existing processes
• Compliance Risk – Ignoring compliance and regulatory standards for specific industries
• Cost Risk – Any decision that causes profit loss or doesn’t follow investor standards
• Equipment Risk – Movable machinery or vehicles and/or new equipment
• External Risk – Natural disasters like hurricanes, tornadoes, and floods
• Financial Risk – Market changes, lawsuits, industry competitors
• Health and Safety Risk – Contagious diseases, chronic disorders, bullying, and extreme stress
• Operational Risk – Tripping hazards or hazardous chemicals and substances
• Strategic Risk – Decision errors, performance changes, and wrongful vendor selection
• Technical Risk – Internet failures, blackouts, water interruptions, and failed software

Step 2 – Assess Risk Probability

The second step of completing a risk matrix is to design your 5×5 grid with an additional column to the left for probability risk levels and scores. Risk assessors insert all business risks, project risks, and strategic risks in the corresponding rows in step two of how to create a risk matrix.

How to Determine the Risk Likelihood

Start your risk analysis by entering identified risks into the risk matrix template or grid idea from the 5×5 example. Create a risk matrix by inserting five rows that show the probability of a risk happening. Each risk type in step one fits a risk scenario showing the risk’s likelihood. Use this guide to allocate the risk’s probability based on risk scenarios:

• Rare Probability – The risk event is unlikely to happen, even if the hazard remains
• Unlikely Probability – It’s somewhat possible the risk event may occur if the hazard remains
• Moderate Probability – The risk scenario will likely occur if not mitigated
• Likely Probability – The risk is very likely to occur if the hazard remains
• Almost Certain – The risk is almost certain to occur if the hazard stays

Step 3 – Determine Risk Severity

Step three of our guide to creating a risk matrix is when risk assessors insert the severity or impact of all the risk scenarios related to the risk’s likelihood, whether dealing with low risks, moderate risks, or high risks, outlining the risk levels. Evaluating risks by risk severity is critical to managing risks.

How to Determine the Severity or Impact

The risk likelihood in the previous step should correspond to the five columns after the likelihood. Design a grid with five columns from left to right, inserting risk categories for impact or severity above the grid for the following scenarios based on mild to severe consequences in the case of the risk occurring:

• Insignificant Impact – The risk won’t cause severe injuries, illness, or consequences that need no treatment
• Negligible Impact – The risk could cause mild injuries, illness, or organizational impact with no treatment necessary
• Minor Impact – The risk may cause injuries, illness, or impact that requires medical attention with limited treatment or operational intervention
• Major Impact – The risk could cause irreversible injuries or illness that require emergency medical attention with prolonged treatment or immediate operational changes
• Severe Impact – The risk could lead to the death of an individual or cause extensive damage to the company

Step 4 – Allocate Numerical Values

A risk matrix is a visual tool that helps risk assessors add numerical values and color codes to allocate resources and reduce risks based on score and risk level. Successful project planning or significant changes in any workplace require a risk score to prevent or reduce the likelihood of potential risk.

How to Determine Risk Impact

Assess risks by adding numerical values to the columns and rows, making each score 1-5 from left to right and top to bottom. An unlikely occurrence with an insignificant impact would both start with a score of one. The more serious the likelihood and impact become, the higher the values should be.

Next, color-code the entire 5×5 risk matrix grid, starting with green shades for any columns and rows corresponding to lower numbers, amber shades for medium-level numbers, and red shades for any digits that correspond to rows and columns closer to the number five.

Step 5 – Prioritize Risks

Risk assessors and employers prioritize the risks according to the total values and colors in the risk matrix in the fifth step to ensure successful project completion. Prioritized risks streamline risk assessments, management, and mitigation plans to make the risk environment safer and healthier.

How to Calculate the Total Risk Levels

Determine whether any operational, business, financial, health, safety, or external risks are low risks or high risks with total values showing the risk level and severity. The guide below shows risk levels or severity by multiplying the rows and column’s individual numbers to get a total score:

• 1-4 Risk Rating – It’s a low risk with no likelihood of occurrence or impact
• 5-9 Risk Rating – It’s an acceptable risk level that requires consideration and minor controls
• 10-16 Risk Rating – It’s a moderate risk that requires immediate mitigation to prevent impact
• 17-25 Risk Rating – It’s a high risk requiring hazard elimination to prevent serious consequences

Step 6 – Implement Mitigation Strategies Based on Risk Score

The risk matrix lets businesses mitigate and manage risks based on priority levels, even potential risks. High risks are commonly eliminated to prevent death or major business risks. However, all the risk assessment matrix entries with lower values are considered for the appropriate control measures that define a risk mitigation plan for employees, business owners, investors, vendors, and visitors.

How to Create a Risk Assessment Matrix Template Using the 3×3 Model

Fortunately, some industries don’t face much risk and can easily create a 3×3 risk matrix template for use when any significant changes inspire new risk assessments. Follow the same steps above, but only create three rows and three columns for risk scenarios.

Score the low to high likelihood and minor to severe impact from 1-3 with totals indicating the following risk landscape levels of severity for an effective risk management plan:

• 1-3 Risk Score – It’s a low risk that won’t likely occur and doesn’t have a serious impact
• 4-6 Risk Score – It’s a moderate risk that will likely occur and has an impact on stakeholders
• 7-9 Risk Score – It’s a severe risk that will occur and have dire consequences

Risk Assessment Tools to Manage Risks Better

Velappity is an all-in-one risk management software with a mobile-first approach and offline capabilities that risk assessors or business owners use to reduce and manage risk events in any industry. OSHA has strict guidelines for any industry to ensure health and safety management.

Velappity gives businesses access to a risk matrix template for enhanced risk management and compliance for efficient project and asset management in all risk assessment processes. An easy-to-use client portal welcomes all users, whether you have experience managing project risks or not.

Additionally, access forms for inspections to speed up the reporting process by up to 50%. Velappity pricing options fit every industry requiring comprehensive risk assessment and management tools and templates. Use our ROI savings calculator to determine how much your company can save.

Use a matrix risk assessment to deliver better products and services to consumers while the risk assessment risk matrix guides all decisions. Our risk ratings matrix walks anyone through the steps to never again have to ask, “What is a risk assessment matrix?”

Furthermore, every form, template, and risk matrix follows industry compliance standards and local regulations to reduce legal or regulatory risks. Start a free trial today, or contact us to discuss your industry, risk types, local legislation guidelines, or project management requirements.

How Different Industries Use Our Risk Matrix for Managing Risks

Multiple industries manage identified risks and potential risks with our risk assessment matrix template. Risk assessments as a whole have never been easier or faster. Here are some ways different industries use the Velappity risk assessment matrix to assess and prevent a risk occurring in the business :

• Construction – Project management, operational, project, and environmental risks
• Energy and Utilities – Legal, compliance, operational, strategic, and project risks
• Financial Services – Regulatory compliance, customer data, legal, and external risks
• Food and Hospitality – Health, safety, compliance, legal, and business risks
• Healthcare – Healthcare application, patient data, legal, compliance, and health risk
• Manufacturing – Regulatory compliance, operational, and cybersecurity risks
• Technology and Information (IT) – Security, data, project, product, and strategic risks
• Waste Management – Operational, business, biological, health, and safety risks

Risk Matrix Guide Conclusion

All risk matrix types provide companies with a solution to the complicated process of selecting and implementing efficient control measures for identified hazards and risks. Follow the steps in the risk matrix guide to design a comprehensive template or use the modified design for a 3×3 risk matrix.

Stop a risk occurring or mitigate risks with numerical values using risk matrices. Reduce risk impact and eliminate unnecessary business risks using the risk assessment matrices in the Velappity app with offline capabilities. Start a free trial today, or contact our experts to discuss your company requirements.

Risk Assessment Matrix FAQs

What are the common risk matrices used in project management?

The most common risk matrices include the 3×3, 4×4, and 5×5 risk and controls matrices (RACM). The 3×3 risk matrix is more commonly used in generally low-risk industries while the larger matrices are implemented in all scenarios to rate potential risk events and ensure all key stakeholders are secure and healthy in all business operations, processes, tasks, and functions.

Any of the risk matrices can also be used to determine a project risk. For example, a project manager will determine the likelihood of a project risk based on the event’s probability before calculating how severe the project risk will be should it occur. Matrices simplify the risk landscape and scope.

How does a risk assessment matrix help risk management?

A risk assessment matrix prioritizes risks by likelihood and impact severity to help business owners, stakeholders, project managers, or risk assessors assign the correct values and controls. Companies won’t waste money or time focusing on risk management for insignificant hazards when evaluating risks with a simple yet proactive risk matrix.

Why are risk assessments important for businesses?

All businesses must follow regulatory standards to avoid any compliance risk in their location, especially if the company has more than five employees or provides services and products to visiting customers. The health and safety of employees and the public remain the responsibility of employers.

Additionally, preventing legal risks reduces the risk of unforeseen lawsuit costs. Furthermore, organizations must conduct risk assessments to reduce the impact of natural disasters, whether the risk level is low or high. Numerical values in a risk matrix can streamline operations and compliance.

Can the 5×5 risk assessment matrix template work for any industry?

Indeed, but why is the 5×5 risk matrix important to any industry? Suppose a business owner wishes to calculate a strategic risk before investing in manufacturing new products. Unfortunately, the cost risk may be far too high based on the likelihood of failure, so the owner can make an informed decision to avoid the investment until a new risk assessment shows a lower impact.

The 5×5 risk assessment matrix outlines the best possible outcome for all key stakeholders in any industry. Another example would be a project manager using accurate rating capabilities to realize the low probability and minor impact of new software integration and how it changes the future of the project risk landscape, ultimately choosing to integrate cutting-edge solutions for a successful project.

However, the 5×5 risk matrix is the most accurate in delivering better numerical values based on the risk’s likelihood and severity, providing a visual tool all stakeholders can follow. The risk level for operational risks, business risks, legal risks, compliance risks, and project risks is more accurate.

How can businesses plan mitigation strategies with the risk matrix?

The comprehensive 5×5 risk matrix outlines the risk landscape and severity levels to guide how risk assessors, project managers, and business owners mitigate risks based on the ratings. For example, a financial risk almost certain to occur with the potential for dire consequences would be eliminated or avoided entirely. Meanwhile, a risk unlikely to occur with a minor impact requires no controls.