Risk assessment matrix

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Risk Assessment Introduction

Risk assessment is the process of risk analysis and risk evaluation. The concept of risk is defined as the probability and severity that a hazard will occur, where a hazard is defined as a condition with the potential for causing an undesirable consequence. A risk analysis is performed as a quantitative evaluation of the risk of an activity.

Risk assessment is performed in safety engineering, reliability engineering, and environmental engineering. It is a key part of any engineering project, both large and small scale. Common risk assessment is performed using a risk matrix, a tool used to determine the severity and probability of an accident independently from one another. Criteria for information to be analyzed using a Risk Matrix model (State, 2004):

  • Identify their most important (critical) processes and functions
  • Identify threats most likely to impact those processes and functions
  • Determine the vulnerability of critical functions and processes to those threats
  • Prioritize deployment of personnel and resources in order to maintain continuous operation of critical functions and processes.
Figure 1:Examples of types of risk Categories for an Engineering Project(1).

Types of Risk Assessment

Risk assessment can therefore be conducted at various levels of the organization. The objectives and events under consideration determine the scope of the risk assessment to be undertaken. Examples of frequently performed risk assessments include:

Technical Assessment

Risk associated with the loss from activities such as design, engineering, manufacturing, technological processes and test procedures. (Dictionary, 2015) Technical risk addresses project level concerns and provides the detailed assessment of the technical risks and issues associated with each option in the capability proposal. The primary purpose of the technical risk assessment is to inform stakeholders of these risks and issues and assist the project in the development of effective risk treatments and issue resolution strategies. At this stage, a significant proportion of the technical risks may relate to insufficient technical information. (Division, 2010)

Financial Assessment

In recent years, increased regulatory requirements have forced businesses to expend significant resources to address risk, and shareholders in turn have begun to scrutinize whether businesses have the right controls in place. The increased demand for transparency around risk has not always been met or met in a timely manner, however—as evidenced by the financial market crisis, where the poor quality of underlying assets significantly impacted the value of investments. In the current global economic environment, identifying, managing, and exploiting risk across an organization has become increasingly important to the success and longevity of any business. (HouseCoopers, 2008) Evaluation of risks related to initial capital investment of the organization through input from various parties such as the World Bank, financial institutions, and stakeholders. This evaluation, typically performed by the finance function, considers the characteristics of the financial reporting elements (e.g. the effectiveness of the key controls (e.g., likelihood that a control might fail to operate as intended, and the resultant impact). (HouseCoopers, 2008) Mining projects are one of the world leaders in capital-intensive projects, and without capital investments would not be able to be undertaken. Capital is required throughout all stages of mine planning, mine design and mine reclamation. (Darling, 2011)

Metal Prices

Forecasting metal prices is one of the most difficult tasks associated with project evaluation and design. The risk associated with the metal price is due to the fluctuations in price over the life of mine period. The metal prices and the revenue are the most sensitive elements when conducting a sensitivity analysis on the net present value of a project. (Darling, 2011)

Exchange Rates

As the Canadian dollar continues to drop against the U.S. dollar, the profit margins of the project will improve because the cost of production declines in dollar terms . (Darling, 2011)