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Risk matrix: what is it and should you use

one?
23 JULY 2021

Risk matrix: what is it and should you use one?

A risk matrix is a simple, visual tool that you can use to determine levels of risk. Although
there are some limitations to risk matrices – in part because of their simplicity – there are
numerous benefits. For those working in risk management, as well those in senior positions,
they provide an accessible overview of the risks an organisation faces, potentially making it
easier to decide how risks should be dealt with.

In this blog, we explain what a risk matrix is in further depth, examine the pros and cons,
and outline how you can create and use a risk matrix should you choose to use one.

What is a risk matrix?

A risk matrix is essentially a tool that can help you understand the risks your organisation
faces, and their overall likelihood and severity, in a visual way. How does it do this?

Risk matrices all follow the same basic structure. They are tables, or grids (typically 5x5),
that show the likelihood of risks occurring along the Y axis and the severity of their
consequences along the X axis. Each axis follows a scale of very low to very high. The risks
that your organisation could face are placed within the risk matrix depending on where
they fall on this scale. This helps you determine levels of risk.

Likelihood x Consequence = Level of Risk

If the risk is high on the likelihood scale and high on the consequence scale, you can define

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the level of risk as very high. Conversely, if the risk falls low on the likelihood scale and low
on the consequence scale, the level of risk would be very low.

Within a risk matrix, levels of risk are further highlighted with a colour-coded system. A risk
that has an overall low level of risk is colour-coded green. If it is medium, it is shown in
yellow or orange. An overall high risk is depicted in red. This traffic light system makes it easy
to quickly understand levels of risk.

Despite this basic structure, risk matrices can vary greatly depending on your organisation
and how you use them.

For example, the likelihood axis can be divided into more specific categories such as
‘certain’, ‘likely’, ‘possible’, ‘unlikely’ and ‘rare’. Categories along the consequence axis could
be called ‘very low’, ‘low’, ‘medium’, ‘high’, and ‘extreme’ or ‘catastrophic’. How you label
these categories is entirely up to you.

Let’s take a look at a risk matrix example.

Examples of a risk matrix

As you can see, the risk matrix is a fairly simple tool, although it can be made more complex

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depending on how you choose to use it within your organisation.

Imagine you are conducting a risk assessment for your day-to-day life. There are plenty of
risks we could face each day, many we don’t even think about. Some risks from ordinary
activities could be:

• Reading – getting a papercut

• Travelling – having a car accident

• Eating – getting food poisoning

You could input these risks into the risk matrix as follows:

Papercuts are certainly a possibility while turning the pages of your reading material. But
since they won’t cause you any serious harm, the overall risk remains low – it’s not going to
stop you from picking up that book, or from doing paperwork.

Food poisoning might be less likely (unless, perhaps, cooking isn’t your forté), but the
consequences could be more severe. Still, you’re unlikely to end up in hospital and the risk
isn’t going to stop you from making your dinner. You might just be more careful to cook
everything properly.

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Then there is the possibility of a car accident. If this is a major incident, the consequences
would be far worse than either a papercut or a stomach upset. For that reason, the overall
risk is medium. That’s why we need driver’s licenses, insurance, and seatbelts. In other
words, actions that seek to mitigate the risk.

As you can see from these examples, where risks are placed within the risk matrix depends
greatly upon context. It is therefore important to thoroughly analyse risks and understand
your organisation’s individual circumstances, so that you can evaluate levels of risk as
accurately as possible.

Think about some of the risks your organisation faces. Where would you place these on
the risk matrix?

What is a risk assessment matrix and 5x5

risk matrix?
You may have heard the phrases ‘risk assessment matrix’ or ‘5x5 risk matrix’. If you have
ever wondered what these are, and if they differ from a simple risk matrix, you will be glad
to know that they are all one and the same.

Because a risk matrix is used during the risk assessment process, it is sometimes referred to
as a risk assessment matrix. The tool assesses risks by looking at their likelihood and
consequences.

A 5x5 risk matrix simply refers to a risk matrix that is made up of 5 cells along the X axis and
5 cells along the Y axis. Essentially, a 5x5 grid. A risk matrix does not have to be 5x5,
although this is the most common type.

How to create a risk matrix

Creating a risk matrix contains similar steps to a standard risk management process.

Identify the risks – What events could prevent your organisation from achieving its
objectives, or bring harm to your business, employees, customers, or other stakeholders?

Evaluate the risks – This is where the risk matrix really comes into play. At this stage, you
need to assess the likelihood or frequency of risks, as well as their severity. Would the
consequences be catastrophic, or a trivial inconvenience?

Input the risks into your matrix – Now that risks have been identified and assessed,
entering them into the risk matrix will help you prioritise and treat them.

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Monitor the risks – Risks and levels of risk are not guaranteed to stay the same once they
are inputted into the risk matrix. Since risk management is a continuous process, you will
need to update the risk matrix to make sure it is accurate.

How to use a risk matrix

So, you’ve made a risk matrix. How do you use it?

As previously stated, a risk matrix will visually tell you the levels of risk that your organisation
is facing. They are often used during the risk assessment process to help you decide which
risk management strategy will be best to deal with them as well as which risks need
prioritising. The risk matrix can be interpreted as follows:

• Green risks – The risk here is low, so risks can usually be accepted. Risk avoidance or
mitigation actions are likely not necessary.

• Yellow risks – The risk here is medium, so you should consider risk mitigation actions to
reduce or resolve the consequences.

• Red risks – These are exceptionally high risks, so adopting a strategy that eradicates
them, such as risk avoidance, is a likely course of action.

You can also use a risk matrix when reporting upon risks, which is an important element of
the risk management process. Risk matrices are useful for communicating, easily and
visually, the risks that your organisation faces and the levels of those risks. They may
therefore come in handy when sharing risk assessment information with others in the
business.

Remember to keep your risk matrix up to date so that it remains a useful, accurate tool.

Risk matrices: a controversial tool

While risk matrices can bring many benefits to your risk management processes, they are
not without their drawbacks. It’s important to be aware of both the pros and cons of risk
matrices before you leap into using one.

The pros:
• They present complex data in a clear, accessible way

• Organisations can customise them as appropriate for their specific situations

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• They highlight which risks should be prioritised

• By being easy to use and understand, they can make your risk management
processes more transparent

• They are an effective method of presenting risk data

The cons:
• The risk matrix categories may not be specific enough to accurately compare and
differentiate between levels of risk

• They can lead to poor decision making if risks are categorised incorrectly

• Categorising the severity and likelihood of uncertain risks is often subjective and
therefore not totally reliable

• They are often oversimplified

• They do not consider timescales and how risks may change over the years

So, should you use a risk matrix?

There are strong arguments for and against using a risk matrix. On the plus-side, they are a
great tool for helping you assess and present levels of risk in a concise and visual way. They
are also relatively straightforward to create – you simply identify risks, evaluate them, input
them into the matrix, and monitor them. Their visual nature also means that they are
valuable when reporting information. By presenting levels of risk using a colour-coded,
traffic-light system, they can be understood almost in an instant.

However, their limitations must too be recognised. Depending on the risks you are dealing
with, your risk matrix categories may be insufficient to properly differentiate between levels
of risk. This is made even trickier when the categories are often subjective. What’s more,
since timescales are not considered within the risk matrix itself, your risk matrix will need to
be regularly checked.

It would be fair to say that the simple nature of the risk matrix is both its greatest benefit
and greatest weakness. Their simplicity makes for a great overview of levels of risk, but it
also means that nuances are left out, which can negatively impact upon decision making.

It is useful to consider what other measures you can implement, in addition to a risk matrix,
in order to ensure that your risk management process is robust.

Now that you understand what a risk matrix is, why not take a look at the benefits of risk

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management software and how implementing technology can support your organisation?

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