What Is Risk Assessment in Business Intelligence?

Risk assessment in business intelligence is vital for companies to protect themselves. It offers businesses a way to secure finances and protect the company’s reputation, employees, and customers. Proactively, risk assessment prepares you for financial, physical, or technical issues that may arise. Using business intelligence tools helps with risk management by determining trends and predictive analytics to evaluate potential risks so leaders can implement risk mitigation strategies. 

Business intelligence tools help make it easier for companies to avoid risks because they use a data-driven process that includes four steps of risk management: risk identification, assessment, treatment, and monitoring/reporting. Business intelligence tools use predictive analytics to find patterns that could lead to risks, allowing your company to take preemptive action to protect the business.

Read more: 5 Business Intelligence Tools You Need to Know

Types of Risk

The type of risk assessment you focus on for your business will depend on how you measure potential risks for the company. Business owners measure risks in different ways, including using financial, operational, strategic, or legal factors—all of which can pose serious risks for your organization. By identifying risks that can arise in specific sectors, your company can proactively minimize or avoid them, so your company must develop a particular goal and methodology regarding the critical risks to monitor and manage. 

But first, it’s helpful to understand the various types of risks, including the following.

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. 

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.

Read more: How to Manage Project Risk: A 5-Step Guide

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.

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.

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.

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.

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.

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.

What is risk assessment used for?

Any business that wants to identify and take measures to minimize or prevent risks that may negatively affect the company can use risk assessments. After identifying specific risks, companies can use this information to determine whether or not to pursue a product or investment. Predicting possible risks helps decision-makers recognize the impact of that risk if it occurs. While knowing this information may not help your company avoid the risk altogether, it can reduce the negative impact. Company leaders and decision-makers must understand potential risks when making crucial business decisions.

Risk assessment in business intelligence

The first step in risk assessment in business intelligence is identifying potential problems. Then, a probability metric helps businesses determine the likelihood of the risk actually happening and what the effect might be. Once your company has all the data analyzed and is aware of the potential impact of a specific risk, create an analysis model that uses all the information to predict various outcomes and probabilities. After analyzing the results, businesses can base their decisions on the information. Finally, the assessment allows you to be proactive by implementing a plan.

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 the information needed to work toward a resolution proactively. In the past, senior management’s responsibilities included handling risk management. Still, the amount of new technology and fast-paced changes in industries make it possible for humans to 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.

Many companies have more than one employee focusing on risk assessment. Many companies have risk assessment teams in place. Because of the various facets involved in risk assessment, teams may include a risk manager, an assessment team leader, a risk assessor, and additional employees with experience in a particular industry.

Pros and cons of risk assessment

Performing risk analyses is vital in many ways, and it offers numerous advantages. However, like anything else, you may also find potential shortcomings. When using risk assessment in business intelligence, consider the pros and cons.

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 drawbacks

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

In addition, the data that is gathered must be secure from the beginning of the process. Another issue is the lack of a 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.

How to get started in risk assessment using business intelligence

When getting started in risk assessment using business intelligence, a competent business intelligence tool is the key. These tools provide vast amounts of data analytics to identify risks and clearly communicate this information to decision-makers. Risk assessment begins with gathering data, which you can then use to identify and quantify 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 management analysts. Be sure your data is being accessed as close to real-time as possible to ensure accuracy. 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 the regulatory requirements for your business, 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.

Read more: How to Become a Risk Analyst

Getting started on Coursera

All companies face potential risks. To build your skills related to risk assessment and techniques you can incorporate at your workplace, check out the University of California, Irvine’s Introduction to Risk Management on Coursera. This Specialization includes four modules that can help you learn the fundamentals and gain more knowledge in the areas of risk assessment, risk management, threat modeling, and business continuity planning.