What Is a Risk Matrix?
A risk matrix is used in risk management to visually define the level of risk by considering the likelihood of impact against the severity of the risk category.
This simple visual tool increases the visibility of risk levels and supports decision-making.
Key Takeaways
- Core Purpose: a risk matrix is a visual risk assessment tool used to evaluate, categorise, and prioritise organisational risks based on two primary metrics: Likelihood and Impact
- The Matrix Formula: Risk is calculated using the fundamental formula:
Risk Level = Likelihood x Impact
- The 5×5 Grid: it typically utilises a 5-level scale for both axes—ranging from Remote to Highly Probable for likelihood, and Negligible to Critical for impact, creating a visual colour-coded map (usually green, yellow, orange, and red, but other colours are used)
- Primary Benefit: it provides instant visual alignment for stakeholders, allowing teams to quickly identify and allocate resources to critical Red Zone risks
- Primary Limitation: it relies heavily on qualitative data, making it prone to subjectivity and the oversimplification of complex, evolving threats
- The Next Step: once risks are mapped, organisations use the results to choose a mitigation strategy: Terminate (avoid), Treat (mitigate), Transfer (insure), or Tolerate (accept) the risk
Risks are inevitable. From start-ups to large multinational enterprises, all face risks that must be controlled and mitigated.
Whether you’re beginning a new business or project or running an established organisation, the critical questions are “What could go wrong?” and “How can we be successful?”.
It’s not a simple task assessing potential risk, let alone managing a suite of risks. Successful organisations find the time and resources to identify risks and devise management strategies to control, mitigate, and even plan contingencies to lessen any high Impact from a threat risk. Your people and organisation are at stake if you don’t identify, evaluate, and manage risk.
A successful risk management process has essential steps. It begins with risk assessment and progresses until risk control measures and mitigating actions are defined.
Here is how each step adds to a successful risk management system.
What Are the Steps in the Risk Assessment Process?
The risk assessment process is a series of stages for effective risk management.
How Do You Identify Risks in an Organisation?
Risk identification associated with an organisation’s operation is one of the first steps in risk management.
Some organisations develop checklists from previous experiences of past projects or changes to manage risks. However, you could be a part of a new start-up, or your organisation is unfamiliar with the concept of risk management, so other methods to use include:
- Brainstorming
- Questionnaires
- Industry benchmarking
- Scenario analysis
- Risk workshops
- Incident investigation
- Auditing and inspection
After identifying the risks, the processes of risk analysis and evaluation begin.
What Is Risk Analysis and How Is It Conducted?
SWOT (Strengths-Weaknesses-Opportunities-Threats) is a technique used to define the organisation’s internal Strengths (opportunities) and Weaknesses (threats), including culture, structure, finance, and resources. External Opportunities and Threats consist of variables outside the organisation, such as political, economic, social, technological, environmental, and legal risks. Given the scope of this analysis, a PESTEL model can be used to support this stage.
Other methods include:
- Threat analysis
- Fault tree analysis
- FMEA (Failure Mode and Effect Analysis)
- Event tree analysis
How Do Organisations Evaluate and Prioritise Risks?
When the risk analysis is complete, it’s necessary to compare the estimated risks against the risk criteria of the organisation.
Risk criteria may include, for example, cost, health, safety, environmental standards, legal requirements, socioeconomic factors, and stakeholders’ concerns.
Risk evaluation supports decisions regarding the significance of a risk to the organisation and whether a specific risk should be accepted, controlled, or mitigated.
How Do You Define and Measure Risk Likelihood?
The risk Likelihood is the probability of a risk occurrence. Within GetRiskManager, the Likelihood of risk has five qualitative ranges [Ref. The Institute of Risk Management]:
- Remote
- Unlikely
- Possible
- Probable
- Highly Probable
How Do You Determine the Severity of a Risk Impact?
The risk Impact considers the consequence if the risk occurred and within GetRiskManager has five levels [Ref. The Institute of Risk Management]:
- Insignificant
- Minor
- Moderate
- Major
- Extreme
The grid assigns a number to the risk, obtained by multiplying Likelihood with Impact.
GetRiskManager provides three calculations:
- Likelihood x Impact (the default calculation)
- (Likelihood x Impact) + Impact
- (Likelihood x Impact) + (2 x Impact)
Calculations 2 and 3 tend to be utilised by charities, allowing a sharper focus on the risk Impact. [Ref. The Institute of Risk Management]
How Does a Risk Matrix Work in Practice?
A Risk Matrix (also known as a Risk Assessment Matrix) is a risk diagram that assists in risk evaluation by visualising the Likelihood and Impact of potential risks. It visually represents all the current risks associated with an organisation, activity, or project risk.
How Do You Handle the Results of a Risk Matrix?
Risk management is an integral part of any successful organisation.
By developing and following a risk matrix, you can help your team prioritise which risks to take action on and track their progress. To make the most of the risk matrix, it’s essential to understand what it does and why it’s crucial.
The risk matrix ranks different risks (threats and opportunities) according to how likely they impact the organisation’s success. By understanding which Risk Events are high or extreme, you can focus your risk mitigation and control resources on those with the most significant positive or negative consequences.
Once you have a list of risks, communicate the risk matrix throughout the organisation to ensure all stakeholders know what’s at stake. Risk management is an ongoing process, and using a risk matrix will ensure that your organisation stays on track.
Why Use GetRiskManager for Your Risk Assessments?
Below is the risk matrix from GetRiskManager indicating all current risks.
The risk matrix consists of a coloured grid, with Likelihood on the X-axis and potential Impact on the Y-axis.
The circles indicate the number of different risks in a zone.
The lower risks are blue at the bottom left of the risk matrix. The top right contains the highest risk level and is coloured red.
These four zones provide a clear vision of the risk situation and the future steps to be taken:
- Red Risks: These risks are very significant. Subsequently, they are a high priority and need to be addressed immediately through control and mitigating actions that will move the high risk into, as a minimum, the Yellow area.
- Yellow Risks: These risks are highly significant but lower than red risks. These should be addressed as a medium risk priority and actioned according to an agreed plan and schedule.
- Green Risks: These risks are moderate-level risks. They are not highly significant; however, they could Impact if not controlled and mitigated. These should be addressed after the Yellow risks and actioned according to an agreed plan and schedule.
- Blue Risks: Lastly, these are low-risk. That does not mean they are unimportant; they should be the last to be addressed or could be monitored over a period and then reassessed.
| Advantages of Risk Matrices | Disadvantages of Risk Matrices |
| Visual Alignment: Visually aligns risk against the Likelihood and Impact. | Lack of Precision: The risk categories may not be specific enough to differentiate between levels of risk. |
| Clear Current Status: Visually indicates the level of current risks. | Subjectivity: Categorising a risk’s severity and likelihood can often be subjective, so it’s not always reliable. |
| Strategic Overview: Provides a comprehensive overview of an organisation’s risks. | Decision-Making Vulnerability: Although a risk matrix is a powerful tool for evaluating, prioritising, controlling and mitigating risks, it can lead to poor decision-making if risks are not categorised correctly. |
| High Customisability: Organisations can calibrate them as appropriate for their specific situations. | Oversimplification: They can often oversimplify a highly complex problem. |
| Actionable Prioritisation: They highlight which risks should be prioritised, i.e., from high-priority Red Risks that should immediately be focused upon, down to low-priority Blue Risks that can be addressed later or just monitored. | No Time Dimension: They generally don’t consider the time needed for risks to play out and how they change over time. |
| Simplicity & Transparency: They are straightforward to use and understand, making risk management a more transparent and effective method of presenting risk data. |
Frequently Asked Questions
What is a risk matrix?
A risk matrix is a visual risk management tool used to evaluate, prioritise, and categorise potential organisational threats. It plots individual risk events on a colour-coded grid based on two key dimensions: Likelihood (the probability of occurrence) and Impact (the severity of the consequences).
What is the standard formula used in a risk matrix?
The standard mathematical formula used to calculate risk severity within a matrix is: Risk Level = Likelihood x Impact. However, some specialised industries or organisations adjust this formula to weight the impact scale more heavily to ensure catastrophic, low-probability events are not overlooked.
What is a 5×5 risk matrix?
A 5×5 risk matrix is the most common grid configuration used in risk management. It features five levels of likelihood on one axis (e.g., Remote to Highly Probable) and five levels of impact on the other axis (e.g., Negligible to Critical), creating 25 distinct intersecting coordinates to accurately map a threat’s severity.
What do the colours mean on a risk matrix?
The colours on a risk matrix visually represent the urgency and priority level of a mapped threat. Typically, Red signifies critical, high-level risks requiring immediate mitigation; Orange/Yellow represents moderate risks requiring scheduled actions or close monitoring; and Green/Blue indicates low-level risks that can be safely tolerated or accepted with minimal oversight.
What are the main limitations of using a risk matrix?
The two main limitations of a risk matrix are subjectivity and a lack of a time dimension. Because categorising likelihood and impact often relies on qualitative opinions rather than hard historical data, it can lead to inconsistent filtering. Additionally, matrices capture a single snapshot in time, failing to show how a risk evolves or how long it takes to play out.
How do organisations use the results of a risk matrix?
Organisations use risk matrix results to allocate their risk mitigation resources efficiently. Once threats are prioritised, management teams apply the “4 Ts” of risk response: Terminate the activity to avoid the risk entirely, Treat the risk by implementing controls to lower its likelihood or impact, Transfer the financial burden (such as buying insurance), or Tolerate the risk if the cost of mitigation outweighs the potential damage.
Final Thoughts: Why Visual Risk Management Is Essential
A risk matrix is only a visual tool; it’s not the complete solution for risk management.
As an organisation, you still need to manage risk by assessing, controlling, and mitigating it through various actions. To help with risk management, you can use a tool such as GetRiskManager to protect your people and your organisation.
