Managing legal risk

Managing legal risk

All commercially successful organisations take risks. Without taking risks, an organisation will stand still, which is a risk in itself.

Organisations take risks in return for increased revenue or profit. Commercial organisations are unlikely to want to eliminate risk altogether, but are likely to want to control it so they can reap the benefits of taking risks while mitigating potential negative consequences.

What is risk?

The informal notion of risk as the chance that ‘something bad might happen’ is one place to start to define risk. A more tangible and easily understood approach is to define risk as probability multiplied by impact.

So, for any given legal risk faced by your business, there are two questions:

•
how likely is it that the risk will materialise, ie what’s the probability?
•
if the risk does materialise, how bad will it be, ie what’s the impact?

You can then evaluate the risk, by adopting a simple risk matrix or scoring system.

How likely is it that the risk will materialise, ie what’s the probability?

Assign a score to your answer between 1 and 5
(where 1 = very low probability

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