Risk Profiling Methodologies
Risk profiling is a part of enterprise risk management, which entails describing the risk sets while taking into consideration the stakeholders, external resources, and frequencies. The process includes identifying, documenting, assessing, and prioritizing risks that could impact an organization, individuals, projects, and assets.
For instance, the risk profile assessment includes determining the readiness of the mechanisms, decision-making and accountability structures, and governance frameworks of an organization (Treasury Board of Canada Secretariat, 2004). Risk profiling entails quantitative analysis of risks. Common risk profile methodologies include:
Heat Maps
Heat maps refer to graphical representations of data based on color-coded systems to represent different values. Heat maps have traditionally been used in the retail matrix, manufacturing diagrams, or population maps for better visualization of events or locations contained in a dataset and hence promptly help viewers to locate crucial data visualization areas (Wilkinson & Friendly, 2012). The methodology has also been adapted to risk profiling. It uses color-codes for describing risks based on their likelihood and impact. Data is represented in the form of a map or diagram in which data values are represented as colors. Typically, sheds of green and red colors are used to describe the least and highest probable risks, respectively.
Risk Maps
Risk maps are often confused with heat maps when it comes to risk profiling. Both methodologies are data visualization tools for describing specific risks within an organization. Risk maps graphically depict a select number of risks within a company. Risk maps typically come in two-dimensional grids with the likelihood or frequency of risk occurrence plotted on the x-axis while risk severity plotted on the y-axis. The risks that appear on the highest occurrence likelihood and severity quadrant are given the greatest prioritization (Preve, 2013). Both the axes of a risk map are rated on a 1 to 5 scale. They are generally easy to grasp and analyze, but tedious to process the data for plotting.
Top-10 Risks Listing and Ranking
This is the simplest risk profiling methodology as it only encompasses listing and ranking of risks in a list of 10. Typically, the process is based on the organization’s strategic objectives, frequency or likelihood of occurrence, severity. The risks are ranked in order of their significance based on the three criteria, which also determines their prioritization (Butler, 2011). Usually, it does not require many calculations to create the list.