“The New Era of Strategy: How AI Can Turn Threats into Opportunities.”

Autor: Marco Antonio Hernández Gómez

The business environment today is more dynamic and complex than ever. Factors that previously had less weight in strategic decision-making, such as globalization, digitalization, environmental and social challenges, and economic and political volatility, are now crucial to the success or failure of businesses.

1. Globalization: Globalization has extended supply chains worldwide, meaning businesses depend on suppliers and partners in multiple countries. This global interconnection exposes organizations to various risks, such as supply disruptions, exchange rate fluctuations, trade barriers, and geopolitical conflicts.

2. Digitalization: While digitalization offers countless opportunities, it also brings significant risks. Cybersecurity has become a central concern, as threats like data theft, digital fraud, and ransomware attacks can cause severe financial and reputational damage.

3. Environmental and Social Factors: Climate change and sustainability are now critical elements in business risk management. Natural disasters and increasing pressure to adopt sustainable practices can disrupt operations and raise costs.

4. Economic and Political Volatility: Global economic uncertainty, characterized by financial market volatility and economic crises, can severely affect business stability and revenue. This is compounded by geopolitical risks, such as international conflicts and diplomatic tensions, creating an unpredictable environment for businesses, especially those with international operations.

In this context, the risk analysis matrix emerges as an essential tool for marketing, human resources, finance, and strategy departments. It enables businesses to proactively identify, assess, and mitigate these risks, ensuring that strategic decisions are based on a clear understanding of the current threats and opportunities.

### Importance of Strategic Planning and Risk Management

In today's business world, strategic planning is not merely a useful tool but a vital requirement for long-term success. The ability to foresee, identify, and mitigate risks has become an essential component of strategic planning. Risk management helps businesses anticipate potential challenges and prepare for them, thereby protecting their assets, reputation, and operational continuity. Integrating risk management into strategic planning ensures that business decisions are made with a clear understanding of the potential obstacles and opportunities presented by the environment.

As businesses face factors like globalization, digitalization, environmental and social changes, and economic and political volatility, risk has diversified and increased in complexity. A company's ability to quickly adapt and mitigate these risks not only determines its survival but also its ability to thrive in a competitive market.

### Purpose of the Article

This article aims to explore and delve into the risk analysis matrix, an indispensable tool for any company looking to manage its risks effectively and proactively. We will focus on how this matrix can be practically applied to business projects, particularly in key areas such as marketing, human resources, finance, and strategy.

The article will guide managers and decision-makers through the fundamental principles of the risk analysis matrix, explaining its relevance in strategic planning and providing clear examples of how it can be used to identify, assess, and prioritize risks in various business contexts. Additionally, we will discuss how to integrate this tool into decision-making processes to ensure that companies not only respond to risks but also leverage them as a competitive advantage.

By the end of this article, readers will understand not only the importance of risk management within strategic planning but also how to effectively apply the risk analysis matrix to enhance the resilience and success of their business projects.

### The Nature of Risks in Business Projects

What is a Risk?

Risks in a business context are defined as uncertainties that can negatively impact project objectives. These can be strategic, operational, financial, technical, or external. However, with proper management, some of these risks can be transformed into opportunities, allowing the organization to capitalize on areas that enhance its competitiveness and success.

A risk is the effect of indecision on objectives, where an effect is a deviation from what was planned. These variations can be positive, negative, or both, and can present as opportunities or threats.

Opportunities within an organization are a series of positive elements arising from an external context. When identified, they can be leveraged through strategy to gain benefits. Most opportunities consist of contexts that allow an organization to improve its stakeholder relationships, develop new services and products, reduce waste, improve productivity, etc.

### What is the Risk Matrix?

The risk matrix is an analytical tool used to assess the probability and severity of risks during project planning.

Types of Risks:

- Strategic Risk: Strategic risks involve performance or decision errors, such as choosing an incorrect supplier or software for the project.

- Operational Risk: Operational risks are process or procedural errors, such as poor planning or lack of communication between teams.

- Financial Risk: This can involve various events causing profit loss, such as market changes, lawsuits, or competition.

- Technical Risk: This includes aspects related to company technology, such as security breaches, power outages, internet service interruptions, or property damage.

- External Risk: External risks are beyond your control, such as floods, fires, natural disasters, or pandemics.

### Benefits of Using the Risk Analysis Matrix

Implementing a risk analysis matrix offers several benefits for companies. First, it enhances decision-making by providing a clear view of priority risks. Second, it optimizes resource allocation by identifying areas requiring more attention and those manageable with less effort. Finally, by demonstrating a proactive approach to risk management, it boosts investor and stakeholder confidence, strengthening the company's position in a competitive environment.

Process for Creating a Risk Matrix

A risk matrix is a tool that enables organizations to evaluate and prioritize risks based on their probability and severity. By crossing these two factors on a matrix, companies can quickly visualize which risks require immediate attention and which can be monitored in the long term.

Creating a Risk Matrix Template

Start by defining the severity scale, which will be placed in the columns of the matrix. The severity scale measures how severe the consequences of each risk will be. In a five by five matrix, there are five levels on the severity scale:

• Insignificant (1): The risk will have few consequences if it occurs.
• Minor (2): The consequences of the risk will be easily managed.
• Moderate (3): The consequences of the risk will take time to mitigate.
• Significant (4): The consequences of this risk will be significant and may cause long-term damage.
• Catastrophic (5): The consequences of this risk will be very harmful and may be difficult to recover from.

Next, you should identify the probability scale, which you will place in the rows of your risk matrix template. The probability scale identifies how likely each risk is to occur.

• Very likely (5): You can be pretty sure that this risk will occur at some point.
• Likely (4): There is a high probability that this risk will occur.
• Possible (3): This risk could or could not happen. The chances of it happening are 50/50.
• Unlikely (2): There is a high probability that this risk will not occur.
• Very unlikely (1): The fact that this risk occurs is a remote possibility.

When you place a risk on the matrix based on its probability and severity, you will obtain the impact level of the risk. The impact of the risk is color-coded from green to red and classified on a scale of 1 to 25.

• Low (1-6): Low-risk events are unlikely to happen and, if they do, will not have significant consequences for your project or company.
• Medium (7-12): Medium-risk events can be a nuisance and cause setbacks in the project, but if you take the appropriate measures to prevent and mitigate these risks during project planning, you will be paving the way for project success.
• High (13-25): If you don't take them into account during project planning, high-risk events can derail your project. Since these risks are likely to occur and have serious consequences, they are the most important in your risk management plan.

A basic matrix would look like this:

5x5 risk matrix

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Guide to Using the Risk Matrix

1. Identify Project Risks?You will need a list of potential risks to use your risk matrix. In this step, you will determine which risks may affect the specific project you are working on. To find the risks relevant to your project, you need to understand the objectives and scope of your project. Here, you should include the following project details:

• Schedule
• Budget
• Resources
• ? Constraints

Using the scope of your project as a guide, think about risk situations that could affect your project. If you’re unsure where to start, try brainstorming techniques like mind mapping or starbursting to list as many risks as possible for each type of risk.

2.????? Determine the Severity of Risks?When you created your risk matrix, you established the criteria for the severity and probability of risks. Now that you have a list of project risks, classify them using the matrix criteria. Start with the severity scale and review each risk you have included in your list. Ask yourself the following questions:

• What is the most negative outcome that could result from this risk?
• o??? What are the worst damages that could be suffered as a result of this risk?
• o??? How difficult will it be to recover from this risk?
• o??? Which of the five severity levels best matches this risk?
• You may not always have the perspective you need to know how severe the consequences of a risk are. In that case, work with other project stakeholders to determine the potential impact of the risk.

3.????? Identify the Probability of Risks Occurring?Once you have defined the severity of each risk, you will have completed half of the risk analysis equation. Next, identify the probability of each risk. To do this, ask yourself the following questions:

• Has this risk occurred before? If so, how often?
• Are there similar risks that have occurred in the past?
• Could this risk occur? If so, what is the likelihood of it happening?
• Team collaboration is also crucial at this step because you may not have concrete knowledge of similar risks that have occurred in previous projects. Be sure to review past projects and analyze the probability of each risk with your team to create a more accurate mitigation plan.

4.????? Evaluate the Impact of Risks?In this stage, you calculate the impact of the risk. The equation to use is as follows: Probability x Severity = Risk Impact

• ?Place each risk in your matrix based on its probability and severity, then multiply the numbers from the row and column where it is located to obtain the risk impact level. For example, if you believe the risk of a data breach is of significant severity (4) and is likely (4), you would multiply four by four to get a risk impact of 16. This is considered a high-risk impact.

5.????? Prioritize Risks and Define an Action Plan?At this stage, it is assumed that you have already located a risk impact level on a scale of 1 to 25 for each identified risk. With these numerical values, it is easier to determine which risks are of the highest priority. When you have risks with the same risk impact rating, it will be up to you and your team to determine which risk to prioritize. Risks with the same risk impact may require the same attention when creating the action plan.

Example of Applying the Risk Matrix in Human Resources

Disclaimer: This exercise is a sample application in Human Resources, focusing on the implementation of a new performance management system and the review of hiring and talent retention policies. It is assumed that risks have already been identified (these could have been identified using the What If technique, see the article I wrote on the topic) before using AI.

Prompt #1: You are an expert in applying the Risk Matrix (5x5) according to ISO 32000 for the company Innovapack, and you need to define the result and color interpretation of the matrix. Before you develop the exercise, consider the following observations:

1. You will combine the severity (impact) scale with the probability scale to determine the risk impact level. The resulting risk level will be color-coded and classified on a scale of 1 to 25.
2. The problem to analyze is that Innovapack is currently implementing a new performance management system and is in the process of reviewing hiring and talent retention policies.
3. The HR team identified the following potential risks:Risk A: Employee resistance to change.Risk B: Loss of key talent during the transition.Risk C: Errors in configuring the new performance management system.Risk D: Lack of adequate training for those responsible for the new system.Risk E: Ineffectiveness in the new talent retention policy.

Prompt #2: What are a list of 3 potential actions you consider should be taken for critical risks (Orange)?

Example Exercise:

1. Human Resources Project Context The food packaging company Innopack (fictitious name) is implementing a new performance management system and is in the process of reviewing hiring and talent retention policies.
2. Risk Identification Potential risks that could affect the implementation of this system and HR policies are identified:

- Risk A: Resistance to change by employees.

- Risk B: Loss of key talent during the transition.

- Risk C: Errors in the configuration of the new performance management system.

- Risk D: Lack of adequate training for those responsible for the new system.

- Risk E: Ineffectiveness of the new talent retention policy.

3. Risk Analysis

Each risk is analyzed in terms of probability of occurrence and impact on the company:

4. Risk Assessment

Risks are prioritized according to their risk level:

- Critical (15-25): Risks requiring immediate action.

- High (10-14): Need specific mitigation plans.

- Medium (5-9): Continuous monitoring and contingency plans.

- Low (1-4): Risks that can be accepted or managed with lower priority.

5. Risk Treatment

Strategies are developed to mitigate the identified risks:

- Risk A (Resistance to change):

o Action: Conduct communication sessions and workshops to explain the benefits of change, involve employees in the process.

- Risk B (Loss of key talent):

o Action: Implement customized retention strategies, such as retention bonuses, professional development, and recognition.

- Risk C (Errors in new system configuration):

o Action: Conduct thorough testing prior to launch, involve IT experts in system configuration.

- Risk D (Lack of adequate training):

o Action: Develop a comprehensive training program for all responsible parties, with continuous follow-up and reinforcement.

- Risk E (Ineffectiveness in the talent retention policy):

o Action: Conduct satisfaction surveys, review and adjust retention policy based on feedback and best practices.

6. Monitoring and Review

The HR team should continuously monitor the implementation of the new system and the effectiveness of policies to ensure that risks are kept under control and that mitigation measures are effective. Periodically review the impact of actions taken and adjust as necessary.

### Conclusion

The risk analysis matrix is not just a management tool but a strategic guide that can make the difference between success and failure in an uncertain business environment. By implementing this matrix, companies can not only identify and mitigate risks but also leverage hidden opportunities in each challenge. I invite all managers and decision-makers to incorporate this tool into their strategic planning to ensure long-term resilience and success.

If you have experience with risk management, I would love to hear your perspective. How have you handled challenges in your organization? Share your ideas in the comments, and feel free to connect if you want to dive deeper into this topic or explore how to implement the risk analysis matrix in your upcoming projects.

IMPORTANT NOTE: If you’ve made it this far, congratulations! As a benefit to you, I’m sharing a prompt that helps you develop a professional risk matrix with AI without being an expert in the field. Here’s the prompt:

“You are an expert in applying the risk matrix (5x5) according to ISO 32000. You are asked to help focus on a problem (insert your topic) where you will apply the risk matrix. Ask me through questions what information you need to build the risk matrix step by step for this case.”

Apply this prompt, and it will guide you step by step in creating a comprehensive, professional, and thorough risk matrix, as long as you provide all the requested information.

If you liked the article, please share it and follow me for more valuable and practical articles like this one. If you have any doubts or comments, they are welcome. I would love to know if you have experience with the topic or if you applied the prompts and how it went. I’m here to help. Best regards.

About the Author:

The author is a Business Strategy Consultant, Innovation Specialist, and AI Applied to Business Intelligence and Marketing. He is a speaker and university professor, currently Director of Aipyme 3.0, a technology platform offering AI services, cybersecurity, and business strategy consulting.

Sources Consulted:

1. [Asana](https://asana.com/es/resources/risk-matrix-template)

2. [ISO Tools](https://www.isotools.us/2022/08/23/como-desarrollar-una-matriz-de-riesgos-y-oportunidades-segun-iso-9001/)

3. [HubSpot Blog](https://blog.hubspot.es/sales/matriz-riesgos)

4. [GRC Tools](https://grctools.software/2022/03/23/matriz-de-riesgos-que-es-y-como-elaborarla-correctamente/)

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