Corporate Risk Stratification - Using Novel Risk Characteristics

The Institute for Sustainable Futures (ISF) has developed a multi-dimensional risk assessment methodology for Water Corporation Western Australia (WaterCorp). Whilst WaterCorp’s existing corporate risk framework is ISO 31000 compliant, it was unable to sufficiently discriminate and prioritise between the organisation’s corporate risks.

ISF has developed a risk management framework based on novel risk characteristics, with the ability to differentiate between corporate risks in a pragmatic manner that adds value to senior executives as well as risk practitioners. Stage 2 of the project built upon the progress that had been developed in Stage 1 by testing and refining the initial risk characteristics and decision framework over four additional case studies in collaboration with the water utility.

The six additional risk characteristics to the traditional ‘likelihood and consequence’ ratings that were developed in Stage 1 and applied in Stage 2 included:

velocity of impact after an event
emergent/novel risks
slow onset/delayed impact
confidence in the risk assessment
confidence in treatment/mitigation of the risk, and
reversibility/recoverability.

The Stage 2 project consisted of four elements:

refining the risk stratification process and risk characteristics from Stage 1
developing a secondary process that could be used to compare and differentiate between corporate risks
testing the process to determine the usability, robustness, and value to decision-makers, and
communicating the risk stratification outcomes through data visualisation techniques.

In parallel, processes were developed for the normalisation of risk scoring and simple ranking between corporate risks. The research project was exploratory and collaborative in nature, with Water Corporation being involved in the co-design of the framework.

The final outcomes of the project include the novel approach to risk stratification for corporate risks, the six risk characteristics, and a set of visualisations summarising the results for decision makers. These new tools for risk stratification will be used by WaterCorp to further understand and compare their corporate and business level risks.