TCFBO #011: The Risk Matrix

Read Time: 4 minutes

Right now your business will be facing all kinds of risks.

Some you will be aware of, some you may not have uncovered yet.

Some may be so great they could destroy your business, whilst others are so minimal they can safely be put to one side (at least for the time being).

The risks could be financial, political, regulatory, reputational, legal, technological, staff related or to do with any number of things inside and outside of your business.

Maybe a risk to your business is your health.

Maybe it’s cashflow.

Maybe it’s a competitor.

Maybe it’s Artifical Intelligence.

The problem is that we often notice a risk when it’s small but don’t do anything about it until it gets so large that we are forced to take action.

Unfortunately, sometimes this action is too little too late.

But even small risks take up space in our heads, space we could be using to focus on building our business.

So how do you decide which risks you need to address today, which you can put to one side to look at in the future, and which you can ignore entirely?

The Risk Matrix is a tool that can help.

Here’s how to use it.

Start off by listing all the risks you can think of.

It doesn’t matter how, big, small, likely or unlikely the risk may be, if you think it’s a risk, write it down.

Once you’ve got your list you’re going to rate the likelihood of that risk occurring as a number between one and five.

For example, let’s say that one of the risks to your business is you becoming ill and unable to work.

If you’re in peak physical condition, work out at the gym every day, eat well, get plenty of rest and your stress levels are non-existent, then you may consider the likelihood of this risk occurring to be slim.

In which case, the risk of you becoming ill and unable to work would be given a rating of “1”.

However, if you eat a diet of junk food, drink a bottle of wine each night, are significantly overweight, are stressed to the max and have been warned by your doctor that you’re a prime candidate for a heart attack, then you may consider the likelihood of you becoming ill and unable to work as very high.

In which case, rate the likelihood of this risk occurring as “5”.

Or if you’re somewhere between the two extremes, rate the risk as 2, 3 or 4 depending on what you perceive the likelihood of it occurring to be.

Once you’ve rated every risk based on the likelihood of the risk occurring, you’re then going to rate every risk based on the impact it would have on your business.

Again, give each risk a rating between one and five.

So keeping with our example of becoming ill and unable to work, if your business is set up so that it continues to generate revenue month after month without you being there, you may consider the impact this risk would have on your business as very low.

In which case, rate the impact of this risk as “1”.

Whereas, if you are a solopreneur and you do all the work with little to no automation, then you may consider the impact that being unable to work would have on your business as very high.

In which case, rate the impact of this risk as “5”.

Once again, if you’re somewhere between the two extremes, rate the risk as 2, 3 or 4 depending on what impact you think it would have on the business were it to occur.

You’ve now got a list of risks and every risk has two ratings – one rating for the likelihood of it occurring and one for the impact that risk would have on your business should it occur.

Now, take each risk in turn and multiply the two numbers together.

So, let’s say you’re a moderately fit and healthy solopreneur and you’ve given the risk of you becoming ill and unable to work a “3” for likelihood and “5” for impact.

Multiply 3 x 5 to get a total risk factor of 15.

Then do the same for each of the other risks you listed.

Now take a look at those total risk factor scores.

Any risk scoring a total risk factor of 20 or 25 needs addressing urgently.

These risks are a significant threat to your business. Not only would they have a very high impact on your business, there is also a very high likelihood of them occurring!

Risks scoring 15 or 16 need addressing as soon as you’ve dealt with the 20s and 25s.

They too are a significant threat to your business.

Risks scoring 8, 9, 10 or 12 are unlikely to bite you in the short term but you’d be wise to take some mitigating action in the medium term to lower the risk.

Risks scoring 5 and 6 are relatively low risk.

They may have a high likelihood of occurring but the impact they would have is minimal.

For example, you might have an old computer that crashes occasionally, but everything it accesses is via the cloud and you have a spare laptop you could use if it stopped working.

Alternatively, a risk scoring 5 or 6 may have a high impact if it occurred but the likelihood of it occurring is slim.

For example, an earthquake that destroys your business premises may have a devasting impact on the business but if your premises are in a location that is not known for having earthquakes, it’s highly unlikely to occur.

Risks scoring 1 to 4 can be put to one side for the time being and reassessed when you revisit this exercise at a later date to see if the risk has increased at all.

Having a long list of risks staring you in the face may feel a little daunting at first.

But we’ve found that getting them onto paper and organised in a way where you can take steps to mitigate the biggest risks will take a weight off your mind and enable you to focus your attention where it is most needed.

Let us know how you get on and we’ll see you next week.

Paul & Philly

Whenever you’re ready, there are two ways we can help you:

1. Discover how to create a life and business you truly love with your copy of “Backwards Planning - A Simple Method to Move You and Your Business Forward” from Amazon.

2. To work with us through the entire “Backwards Planning” process outlined in the book, you can apply to join The Clear Focus Business Academy.

The first step is to book a facilitated Life Vision Session which we conduct one to one over Zoom. This session will not only give you clarity on what you want from your life but will give you the opportunity to experience how we work and ensure we're a good fit for each other before deciding whether The Clear Focus Business Academy is right for you. It comes with a 100% money back guarantee, so if you're not entirely satisfied, simply let us know at the end of the session and we'll issue a full refund.