Risk control matrix

Risk Control Matrix: How to Make The Most of It

Running your business today comes with a never-ending list of risks. 

Cyberhackers holding your data for ransom.

Technology changing faster than you can keep up.

Regulators regulating your industry.

The list goes on and on.  

Mitigating risks for your company may feel tedious. Or gouge your eyeballs out boring.  

But unfortunately, it’s a necessary evil.  

But we are here to help. Here’s what to know about a risk and control matrix and how to make the most of it.

What Is a Risk and Control Matrix?

Often abbreviated as RACM or RCM, a risk and control matrix is a tool that summarizes an organization’s risk profile. It includes potential risk events, the respective risk control strategies, and the expected outcome of the controls.

Risks are often documented in order of rank, from high to low, and continuously evaluated.

Why Is a Risk and Control Matrix Important?

Without a risk and control matrix coupled with a disciplined and proactive approach to risk, your business may be exposed to a firefighting approach to risk. In most cases, this approach is both costly and ineffective.

Ultimately, a risk and control matrix is essential because it offers organizations a realistic chance of managing risk and mitigating the potential outcomes of risk events based on the likelihood of their occurrence.

Key Fields in the Risk Control Matrix

The following are the key fields of a risk and control matrix you should have a handle on.

  • Risk or risk event: The risk identified. It can include everything from financial risks to environmental threats.
  • Control: Also known as risk control, this is how the organization plans to prevent or detect a particular risk or risk event.
  • Control number: Some risk matrices include a control number that helps identify a particular control for ease of reference.
  • Control objective: This is often a brief but clear statement that explains why a business has adopted a particular control measure and what the control measures are expected to achieve.
  • Risk rating: An assessment of the potential impact and likelihood of risk, usually rated from high, medium or low
  • Frequency: This is a key field in a risk and control matrix that stipulates the number of times a specific control should be carried out.
  • Control owner: This is the staff responsible for a particular control measure.

5 Levels of Risk

The following are the five levels of risk, often identified within the context of an enterprise risk management framework

While each company may use different names for these five categories, but will generally look like this:

  • 🟢 Negligible: These risks have the least potential impact. They are unlikely to disrupt operations or cause any significant harm.
  • 🟠 Low: These risks could cause minor disruptions or damage, but they can generally be managed easily and would not result in severe outcomes.
  • 🟡 Medium: These risks could disrupt operations and may require more resources to manage. They represent a significant concern that needs to be addressed, but they are not necessarily catastrophic.
  • 🔴 High: These risks could cause substantial damage or disruption. They require immediate attention and significant resources to manage and could potentially have long-term effects.
  • 🔥 Severe or Critical: These are the most serious risks. They could result in catastrophic damage or disruption, such as severe financial loss, loss of life, or a complete breakdown in operations. They require immediate and significant intervention.

These levels are used to prioritize risk management activities. The higher the risk level, the more urgently it must be addressed. It’s important to note that risk levels are not static – they can change over time as circumstances change and as a result of risk mitigation activities.

Here’s the truth. Without a system that continuously monitors risks and makes early identifications, your level of risk can be significantly elevated without your knowledge. Fortunately, automated risk management programs such as FloQast Compliance Management make continuous risk monitoring easy and effective.

What Are the Benefits of a Risk and Control Matrix?

Before designing a risk control matrix (sometimes called a risk assessment matrix), it will be important to understand its benefits and whether or not it is worth the hassle. Consequently, you’ll need to consider the following benefits of a risk and control matrix.

Benefit 1: The Risk and Control Matrix Provides Risk Management Standardization

The matrix standardizes the risk assessment process across different organizational departments or units, promoting consistency in risk management.

Benefit 2: The Risk and Control Matrix Improves Risk Communication

It is a helpful communication tool for discussing risks and controls with different stakeholders, including senior management, board members, auditors, and regulatory bodies.

Benefit 3: The Risk and Control Matrix Helps Prioritize Risk

Risks, unlike men, are not created equal. A risk and control matrix helps prioritize risks and allows allocating resources to high-priority areas.

Benefit 4: The Risk and Control Matrix Mitigates Risk

By outlining effective controls and the outcomes of those controls, an RCM can guide the development and implementation of strategies to reduce risks.

Whether it’s risks in financial reporting or SOX compliance, knowing where the potential fires are is vital for success. 

Create a Risk Control Matrix: Step-by-Step

Developing a risk and control matrix need not be overwhelming. You can use the following step-by-step process to create your own risk matrix.

Step 1: Identify the Risks 

Through risk identification tools such as brainstorming sessions, you can identify the types of risk within your company according to the respective risk categories. 

Examples of risk categories include financial risk, operational risk, and strategic risk.

Step 2: Determine the Risk Controls

Identify the existing controls that are in place to mitigate each risk. These might be preventative controls (designed to prevent the risk from occurring) or detective controls (designed to detect the risk after it has happened).

Review the controls to determine if they are effective at controlling the risk. 

Step 3: Assess the Risk

Here, you will need to assess risk, whether Severe, High, Moderate, Low, or Negligible, based on a predetermined scale that should factor in risk probability and risk impact. The following is an example.

Likelihood/ ImpactNegligible impactLow impactModerate impactHigh impactSevere impact
Highly unlikelyNegligible Risk (1/25)
UnlikelyLow Risk (4/25)
PossibleModerate Risk (9/25)
LikelyHigh Risk (16/25)
Highly likelyMajor Risk (25/25)

Step 4: Assign Ownership

Assign ownership for each control to a person or a department within your organization. This ensures that someone is responsible for monitoring and managing each control.

Step 5: Review and Update

Remember that your RCM should be a living document. It should be reviewed and updated regularly to reflect changes in your organization’s operations, risk environment, or regulatory requirements.

Stefan van Duyvendijk

Stefan van Duyvendijk is FloQast's first Accounting Operations Evangelist. Stefan is a tenured controller who has consistently nurtured finance professionals and improved accounting processes throughout his career. Previously he was Corporate Controller for Kodiak Cakes where he led a 10-member finance team through a pre-IPO initiative. Before that, he was U.S. Controller for Skullcandy and senior associate at KPMG.