A risk management assessment is a step in the risk management process that involves identifying and assessing risk prior to determining ways to address and reduce that risk. The risk management assessment may involve both quantitative and qualitative processes to determine the risk and likelihood of anticipated damage. By discerning the actual risk inherent in the subject of the analysis, the assessment gives important information to be used in the determination of whether or not to take remedial measures to prevent such damage, which is the next step in the risk management process. Risk management assessments are important across every industry, from public health to information technology.
The objective portion of a risk management assessment assigns values to all the components of risk including the likely damage to the subject that may occur and the likelihood such damage will occur. By taking both these values into consideration, the assessor may assign an absolute value to the risk inherent in the process that he or she is evaluating. Subjective environmental factors must also be weighed against the objective analysis to put the risk in its proper context. The risk management assessment that results from this line of analysis will then be compared to the costs of taking steps to prevent the loss from happening and this cost-benefit analysis will determine any resulting steps toward risk management.
The first step of a risk management analysis is typically to identify the source of any possible risk. By doing so, the assessor can evaluate the possible issues that may flow from the source. The next step is to determine what the likely level and type of damage is if a given event happens regarding the source. The final step is to then determine the likelihood of such an event happening.
A good illustration of risk management assessment is in public health where a government must determine the risk to a population from a natural disaster such as an earthquake. In this scenario, seismic activity is the source of the risk but the real risk is in the safety of the existing structures that house the population. So the assessor must then determine the likely damage to those structures that would flow from various levels of seismic activity and the resulting loss of life. The next step in the risk management assessment would be to determine the likelihood of the various levels of seismic activity. From there the assessor can consider contextual factors such as the relative age and health of the population and fully assess the risk stemming from the potential seismic activity.