How do you incorporate risk event severity measurement into your risk culture and governance?

I totally disagree! Likelihood, Impact and Severity have their distinct underpinnings in my professional opinion. I do not concur to severity being a function of likelihood and impact; that is what risk is. Yes, severity is a derivative of impact, a measure of the degree of impact and how much time it takes to survive and recover from such an impact; that's severity, not some product of impact and likelihood!

Two actions are critical when defining risk event severity: 1) What is the difference between a High, Moderate, and Low risk event? A few parameters may be monetary i.e. above $100,000 or which causes legal or reputational damage including product recall. 2) Which risk owner is responsible for mitigating high risks immediately and what escalation mechanism will be followed? Assigning risk responsibilities and specifying collaboration tools is important. In the case of a Cyber Security breach, how will the CISO react and coordinate with key personnel, etc?

A gravidade dos eventos de risco é determinada pelo impacto potencial e pela probabilidade de ocorrência. O impacto avalia as consequências, como perdas financeiras ou danos à reputação, enquanto a probabilidade estima a frequência desses eventos baseada em dados históricos ou análises. Para mensurar a gravidade, utilizamos métodos como escalas qualitativas, estimativas quantitativas ou matrizes de risco, facilitando a incorporação dessa análise na cultura de governança de risco da organização.

In my experience, defining risk severity involves categorizing potential risk events based on their impact and likelihood. For example, in a financial services project, we classified risks as minor, moderate, or severe based on potential financial loss and operational disruption, which provided a clear framework for prioritizing mitigation efforts.

Risk Event Severity: The potential impact or consequence of a risk event, usually measured in terms of financial loss, operational disruption, reputational damage, or compliance breaches. Aligning risk event severity measurement with risk appetite and tolerance is essential for effective risk management. By defining clear thresholds and ranges, organizations can prioritize risks, make informed decisions, and ensure that their risk-taking aligns with strategic objectives. However, this approach requires regular reviews, standardization, and stakeholder involvement to address its dynamic nature and implementation complexity.

While working on several projects, aligning risk event severity with our risk appetite and tolerance was crucial. We ensured that severe risks were only taken if they fell within our predefined risk tolerance, using risk matrices to visualize and align these with our organizational thresholds. You can use thresholds or ranges to define acceptable and unacceptable levels of risk event severity, and map them to your risk appetite and tolerance statements.

In order to align risk event severity with our risk appetite and tolerance, we should create a severity-tolerance matrix that maps various risk events to predefined thresholds. This allows our team to quickly assess if a risk falls within acceptable limits or demands immediate action. By linking each level of severity to corresponding risk appetite statements, we create a clear framework for decision-making. This ensures consistency in prioritising risks and aligning actions with our organisation's capacity for risk-taking.

O alinhamento da gravidade dos eventos de risco com o apetite e a tolerância ao risco de uma organização é fundamental para uma gestão de riscos eficaz. O apetite ao risco reflete a quantidade e o tipo de risco que uma empresa está disposta a aceitar em busca de seus objetivos estratégicos, enquanto a tolerância ao risco define os limites dentro dos quais os riscos devem ser mantidos. Ao medir a gravidade dos riscos, é crucial utilizar limites que esclareçam quais níveis de risco são aceitáveis e quais são excessivos. Isso permite uma comparação e priorização eficiente dos riscos, assegurando que as respostas aos riscos estejam em consonância com a capacidade e a disposição da empresa de absorver perdas.

Effective communication of risk event severity is crucial for ensuring that all employees are aware of the risks that impact their roles and responsibilities. This awareness enables them to make informed decisions and take appropriate actions Communicating risk event severity effectively across your organization involves identifying the audience and their needs, choosing the right tools and channels, ensuring consistency and clarity, timing communications appropriately, and tailoring the message to the context and needs of the audience. By employing dashboards, reports, newsletters, meetings, maintaining clear, timely, and consistent communication, you enable informed decision-making and proactive risk management across the organization.

Comunicar efetivamente a gravidade dos eventos de risco para toda a organização é crucial para uma gestão de riscos proativa. Utilizar ferramentas como painéis de controle, relatórios detalhados, boletins informativos e reuniões regulares ajuda a disseminar informações pertinentes sobre os riscos. A chave é garantir que a comunicação seja consistente, clara e oportuna, adaptada para atender ao contexto e às necessidades específicas de cada departamento. Assim, todos na empresa podem tomar decisões informadas e adequadas à sua esfera de atuação, aumentando a eficiência na gestão de riscos.

One thing I have found helpful is regularly communicating risk event severity to the entire organization. For instance, at work, we conducted quarterly meetings where we presented recent risk events, their severity, and the steps taken to address them, ensuring everyone understood their roles in managing risks. Other means of communication such as newsletters, dashboards, and reports can be utilized. Your communication must be clear, concise and timely!

To embed risk event severity into your processes and practices, integrate it into planning, budgeting, performance measurement, project management, and audit processes. Use risk severity as a criterion for decision-making and resource allocation, and regularly review and update your measurements to reflect changes in your internal and external environment. This comprehensive approach ensures that risk management is a continuous, integral part of your organization's operations, enhancing resilience and informed decision-making.

In my experience, embedding risk event severity into processes and practices involves integrating it into standard operating procedures. While I was working on an healthcare project with a colleague a while ago, we included risk severity assessments in our project planning and review stages, ensuring that potential risks were consistently evaluated and addressed.

We integrate risk event severity into daily operations, by using it as a core criterion for decision-making across all business functions. We incorporate severity ratings into project approvals, budget allocations, and performance reviews. We then establish a culture where risk event severity is a regular discussion point in operational meetings, ensuring it is considered in strategic decisions. Regular updates to severity assessments ensure they reflect the evolving business and market conditions, helping maintain operational resilience.

Integrar a gravidade dos eventos de risco nos processos e práticas diárias é essencial para um gerenciamento de riscos eficiente. Isso pode ser alcançado ao incluir avaliações de risco no planejamento estratégico, orçamento, medição de desempenho e gerenciamento de projetos. Utilize a gravidade dos riscos como um critério chave na tomada de decisões, alocação de recursos e seleção de respostas ao risco. Além disso, é vital revisar e atualizar regularmente a avaliação da gravidade dos riscos para assegurar que ela reflita quaisquer mudanças no ambiente interno e externo da organização, garantindo que as estratégias de mitigação de riscos permaneçam relevantes e eficazes.

Rewarding and recognizing risk event severity management fosters a positive and proactive risk culture in your organization. Link risk management to incentives and appraisals, celebrate success stories and best practices, and encourage feedback, learning, and innovation. Promote a no-blame culture and support employees in their risk management efforts. By doing so, you create an environment where risk management is valued and integrated into everyday activities, enhancing your organization’s overall resilience and effectiveness.

Promover uma cultura de gerenciamento de risco positiva e proativa é essencial, e isso pode ser incentivado por meio de recompensas e reconhecimentos efetivos. Vincular o gerenciamento eficaz dos riscos a incentivos, avaliações de desempenho e programas de reconhecimento motiva os colaboradores a se engajarem ativamente na identificação e mitigação de riscos. Além disso, celebrar sucessos, compartilhar práticas recomendadas e lições aprendidas ajuda a disseminar a importância do gerenciamento de riscos na organização. É igualmente importante encorajar feedback, aprendizado contínuo e inovação, ao mesmo tempo que se evita a cultura de culpa, especialmente em situações onde os eventos de risco são inesperados ou fora do controle.

One thing I have found helpful is recognizing and rewarding effective risk event severity management. Organizations can design an incentive program that acknowledges teams and individuals who successfully identified and mitigated severe risks, fostering a proactive risk management culture. This will not only bring about risk awareness, it will also get everyone involved and committed.

We monitor risk event severity using KRIs and KPIs tied directly to severity thresholds. In this case we implement real-time dashboards to track severity metrics, with automated alerts when risk levels exceed predefined thresholds. We use balanced scorecards to communicate risk event severity trends and outcomes to key stakeholders, from executives to regulators. This transparent reporting ensures accountability and demonstrates the effectiveness of our risk mitigation strategies, fostering trust and continuous improvement in risk management practices.

As Chief Risk Officer, I prioritize building a data-driven risk culture. We assess severity for each risk event, considering potential financial losses, reputational damage, and operational disruptions. This severity score is integrated into our risk register, guiding resource allocation and mitigation strategies. High-severity risks trigger immediate action plans, while lower ones receive ongoing monitoring. Regular communication across departments ensures everyone understands critical risks and their potential impact. This fosters a proactive approach to risk management, making it an embedded part of our decision-making process.

Risk events can be past or probable scenarios. - Communicate to the risk owners about the importance of capturing risk events - Maintain a log of risk events that have happened - Collect definite data about how, when, impact of the event in financial, operational, compliance, reputation, health and safety etc, measures taken; Collaborate with risk owner and their teams - Analyse probability of recurrence, impact, - Monitor for recurrence

The article provides valuable insights but lacks clarity in connecting risk event severity with actionable governance strategies. Severity as a product of impact and likelihood simplifies a complex concept; severity should emphasize the degree of impact and recovery time, independent of probability. Incorporating concrete examples, such as severity thresholds tailored to industry contexts, would enhance practical applicability. Additionally, the article could benefit from more structured guidance on integrating severity metrics into decision-making, stakeholder communication, and real-time monitoring. Expanding on tools like dashboards or scenario analysis would also strengthen its utility for risk professionals.