TRM Advantage, Risk management online application, uses the industry standard 5×5 risk matrix for qualitative risk analysis. All matrices are used to assess and evaluate the probability and impact of potential risks, allowing organizations to prioritize risk mitigation efforts based on their level of severity. Research has shown that the 5X5 matrix provides a balance between not enough and too much detail on each axis.
The clarity and simplicity of the 5×5 matrix are one of the main reasons for its popularity as a tool for qualitative risk assessment. The matrix consists of five levels of likelihood and five levels of impact, which makes it easy to understand and use for risk assessment. Having fewer than 5 levels is too little granularity to get a solid understanding of likelihood and impacts while having more than 5 levels does not effectively refine likelihood and impact values but does generate more group debate. 5X5 is generally thought of as ‘just right’.
Another benefit of the 5X5 matrix is when developing and calibrating the level descriptors for the matrix. Each risk is examined from different viewpoints, or aspects. Each aspect of a risk– think of Safety & Environmental, Cost, Quality, and Corporate as different aspects of a risk – and each level within the aspect must be standardized and communicated to a group. Everyone will have a different interpretation of each level – think critical, high, medium, low, or manageable risk – and the level descriptors are used to pull them all towards the same interpretation. Without clear level descriptors, everyone will use their ‘gut feel’ and almost nobody will see things the same. It becomes very difficult to generate agreement and/or explain why a risk level was assigned to senior management. Five levels for each likelihood generates a reasonable distinction between them – and the same goes for the levels for each aspect.
The simplicity of a 5X5 matrix is hard-wired into TRM Advantage By providing a clear and concise understanding of what each aspect’s level means, the differences between them become apparent. This in turn leads to a better understanding and more informed and effective risk management strategies, which ultimately help organizations to better manage and mitigate their risks.
The 5×5 matrix is the industry standard tool for qualitative risk assessment and is used by almost all software packages. By providing a clear and straightforward framework for conducting risk assessments and improving the accuracy of risk assessments, the matrix helps organizations to make informed decisions about how to manage their risks and minimize the impact of risk events.
TRM Advantage provides a completely flexible 5X5 framework for likelihood and each aspect’s impact assessment. The descriptors for each level are fully customizable to your industry and/or project. In larger organizations, it is suggested that key aspects such as Safety & Environment, Quality, and Corporate should have their levels standardized throughout the organization. Cost levels are reasonably variable – a $1,000,000 impact in a small project may be critical, but a $1,000,000 impact on a $10,000,000,000 project may not be considered critical. Cost levels are reasonably situational.
The bottom line is that a 5X5 matrix is robust and is known by risk experts to provide optimum level granularity for risk management solutions. It is challenging to get a group of supervisors and experts to agree on the likelihood level and the impact level for each aspect. TRM Advantage supports tailoring your matrix aspect levels to the organization and simplifies generating agreement. This simplifies risk assessment sessions, meetings, and risk management overall. Having an application to help manage the risks and associated data is essential for success.
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