What is Risk Analysis?

Risk analysis is a multi-step process aimed at mitigating the impact of risks on business operations. Leaders
from different industries use risk analysis to ensure that all aspects of the business are protected from
potential threats. Performing regular risk analysis also minimizes the vulnerability of the business to
unexpected events.

Difference Between Risk Assessment and Risk Analysis

Risk assessment is just one component of risk analysis. The other components of risk analysis are risk
management and risk communication. Risk management is the proactive control and evaluation of risks
while risk communication is the exchange of information involving risks. Unlike risk analysis, risk
assessment is primarily focused on safety and hazard identification.
 Risk Analysis Framework

Risk Analysis Methods

There are two primary risk analysis methods: qualitative and quantitative.

 Qualitative risk analysis:

 Easier and more convenient.

 Rates risks based on perceived severity and likelihood.

 Quantitative risk analysis:

  Calculates risk using available data.

Qualitative analysis tools include all root cause analysis (RCA) tools except failure mode and effects
analysis, needs assessment, and risk matrix. Common quantitative types include the 33, 44, and 55 risk
matrix.

Risk Assessment Matrix | SafetyCulture

Quantitative risk analysis includes types such as business impact analysis (BIA), failure mode and effects
analysis (FMEA), and risk benefit analysis. The main distinction between qualitative and quantitative risk
analysis lies in the type of risk assessed: qualitative analysis yields projected risk (estimates of how risks
may manifest), while quantitative analysis focuses on statistical risk (specific and verified data), often used
for calculating insurance premiums.

Types of Risk Analysis

As risk analysis covers a wide range of topics, there are many approaches to analyzing risks or types of risk
analysis. These include, but are not limited to, the following:
  Risk Benefit & Cost Benefit Analysis
A risk-benefit analysis looks at the advantages and disadvantages of an action, helping to determine
how likely it is to succeed or fail. On the other hand, a cost-benefit analysis adds up the expected
costs and compares them to the expected benefits. Both methods help leaders make smart choices, as
taking on risky or expensive actions can result in losses.
 Needs Assessment
A needs assessment is a structured process that helps organizations find out what they are lacking. It
identifies gaps in the business and allows leaders to understand what needs improvement. This way,
they can better use their resources to reach their goals more effectively.
 Business Impact Analysis
A business impact analysis helps companies prepare for disruptions caused by natural disasters and
other external factors. It lays the groundwork for recovery plans and guides investments in prevention
and mitigation strategies.
 Failure Mode and Effect Analysis (FMEA)
A failure mode and effects analysis is a method used to find possible problems in business processes
and reduce their impact on customers. By identifying these issues, FMEA helps improve the
reliability of products and services while also lowering costs associated with failures.
 Root Cause Analysis
A root cause analysis aims to find and remove the main reasons behind problems. This approach
helps prevent the same issues from happening again by addressing the weak systems that lead to
them. Besides failure mode and effects analysis, other tools used for root cause analysis include:

 5 Whys

 8D

 DMAIC (which is part of Six Sigma)

Risk Analysis Example

Here are risk analysis examples for three major industries: construction, transport & logistics, and
manufacturing.

Construction Risk Analysis Example: The owner of a construction company considers a luxury resort
project proposal that could boost her company’s reputation, but hesitates due to her focus on mid-range
residential buildings. She conducts a risk-benefit analysis with her team to evaluate the potential risks and
benefits before making a decision.

Transport & Logistics Risk Analysis Example: The director of a multinational shipping company worries
about an upcoming storm’s impact on operations and proposes setting aside recovery funds. A colleague
disagrees, believing the storm will have minimal effects. To convince him and other directors, she conducts a
business impact analysis and presents the results at the next board meeting.

Manufacturing Risk Analysis Example: A new manager conducts a needs assessment by surveying
workers to prepare the factory for increased summer orders, ensuring successful production of sufficient
units.
How to Perform Risk Analysis
For leaders who have already decided on the type of risk analysis to perform, here are steps and instructions
for each type:

How to Perform Needs Assessment

 Step 1: Identify requirements What must the business deliver to succeed?

 Step 2: Assess existing resources What can be used to achieve success?
 Step 3: Identify needs What does the business lack that is critical to success?
 Step 4: Develop a plan of action What must be done to fill the gaps and succeed?

Needs Assessment Template

Use this digital template to assess your business or department’s performance and identify learning needs,
providing leaders with essential tools for effective management.

How to Perform Business Impact Analysis

 Step 1: Gather information on business processes, finances, and management.

 Step 2: Identify Recovery Time Objective (RTO) or how long it takes to restore business processes
after disruption. RTO helps determine how long the business can function without normal business
processes.
 Step 3: Identify Recovery Point Objective (RPO) or the acceptable loss to customers when a
disruption occurs. RPO helps determine the estimated financial impact on the business.
 Step 4: Develop workaround procedures of the business in the event of disruption.
 Step 5: Decide business needs based on the information gathered in previous steps.

Business Impact Analysis Template

Use this digital template to evaluate the impact of potential disruptive events on key business functions. It
assesses operational losses and revenue, helping leaders prioritize recovery efforts during crises.

How to Perform Failure Mode and Effects Analysis

 Step 1: Identify mechanism of failure

Identify potential failure modes and causes by reviewing past failures and establishing ground rules.

 Step 2: Determine RPN

 Calculate the risk priority number (RPN) based on severity, occurrence, and detection to
prioritize failures. Focus on the top 20% of high RPNs for improvement efforts.
 FMEA: RPN Risk Analysis | SafetyCulture

Leaders should focus their improvement efforts on potential failures at the top 20% of the highest RPNs.
These high-risk failure modes must be addressed through effective action plans.

 Step 3: Follow-up on actions

 Continuously review and update action plans addressing high-risk failure modes after
implementation.

Failure Mode and Effects Analysis Template

Use this digital template to pinpoint issues in processes or products by detailing the potential failure effect,
cause, and current controls. Include severity, occurrence, and detection ratings, then record the RPN and sign
off.

How to Perform Root Cause Analysis

  Step 1: Define the problem

 Identify observable consequences of an unidentified risk or root cause.

 Step 2: Select a tool

 Use methods like:

 5 Whys: Ask “why” five times; simple but may oversimplify issues.

 8D: Eight disciplines for long-term solutions; requires extensive training.

 DMAIC: Comprehensive yet easier than 8D, especially if the analysis is simplified.

 Step 3: Implement actions

 Develop and execute specific actions addressing the root causes identified.

Root Cause Analysis Template

Use this digital template to examine a recurring problem’s impact on productivity. Identify reasons for the
issue, rate their likelihood as root causes, select a root cause category, and propose a prevention strategy.

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FAQs about Risk Analysis

What are the 4 components of risk analysis?
What is a risk analysis checklist?
What is the most commonly used technique for risk analysis?

Article by

SafetyCulture Content Team

SafetyCulture Content Team

The SafetyCulture content team is dedicated to providing high-quality, easy-to-understand information to
help readers understand complex topics and improve workplace safety and quality. Our team of writers have
extensive experience at producing articles for different fields such as safety, quality, health, and compliance.

In this article

 What is Risk Analysis?

 Difference Between Risk Assessment and Risk Analysis
 Risk Analysis Methods
 Types of Risk Analysis
 Risk Analysis Example
 How to Perform Risk Analysis
 SafetyCulture Platform for Teams
 FAQs about Risk Analysis

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