By Okechukwu Onwuka
What is risk assessment all about? What does risk really mean? We’ll try to answer some of these questions today and in the continuing series. I was going through previous articles in this series and I was somewhat surprised at my finding.

There has been significant deviation from practical insights into the principle and practice of risk assessment and management in enterprise. One reason for this however is the enormity of the prevailing in-country challenges that combine to frustrate the enthronement of a viable national enterprise. That is also a risk on focus but it shall be overcome.

So, what constitutes a business risk? There are many definitions of business risk but in very simple terms, a business risk consists of any circumstance, situation, event, condition or scenario that has the potential to derail, truncate or hurt your business or project objective. Such risks are generally categorized as Negative Risks.

In deeper risk management principles, there is another category of risks referred to as Positive Risks. We’ll discuss positive risks in future articles. Today, our focus will be on Negative Risks as they affect business objectives.

On the surface, a number of people are scared of risks and as such will do anything to avoid any undertaking that they perceive as risky. From my experience, I have come to realize that this fear is usually based on a not so deep understanding of risks and the role they play in business.

In truth, without risks, there is no business. All that business owners do is to navigate through the obstacles/challenges (Potential risks) to deliver quality products or services. But to do this successfully, they must develop proper plans on a platform of sound risk assessments. Risk assessments refer to the process or methodology used to proactively identify and analyze risks on a new or existing business, task or initiative. By definition,
Risks = Probability x Consequence.

This is not the traditional mathematical equation but rather shows that the quantification of risk involves matching the historical probability (of the event occurring) with the likely Consequence or Impact of the event on the business or objective (If the event occurs). In risk analysis, the initiating event may or may not lead to an undesired consequence.

For instance, having a flat tire in motion (initiating event), may lead to a car crash, somersault or severe damage (Impact).

It is also possible that the car can be manoeuvred to safety with an experienced driver with little or no damage or negative consequence. One universally recognized method for quantifying risks is by the use of a Risk Matrix. A very simplified risk matrix is illustrated below. Different categories are identified for Consequences (Minor, Major, Catastrophic) and also for Probabilities (Rare, Occasional and Frequent).

Risk Assessment Example: To illustrate a simple application, let’s take the case of a 55 year old man, who is still employed but plans to set-up a primary/secondary school on the side to be managed by others until he formally retires in 5 years time.

He has already acquired the land in his state capital although he works in another city, 100 kilometers away. He plans to recruit a manager, (possibly a relation but not his wife) to  run the school. The potential risk event under consideration is the sudden resignation of the hired school manager/administrator, less than 12 months after school opens to the public. The analysis technique is known as the scenario-based risk analysis. Follow the narration from step 1 through 9.