ACCA SBL Syllabus D. Risk - Heat Maps - Notes ^{2 / 9}

A heat map visualises risks

It gives a big picture, holistic view to share while making decisions about the likelihood and impact of risks

In the heat map, values are represented by colours:

They can be SIMPLE (qualitative only: 3x3) 
They can be VERY COMPLEX (both qualitative and quantitative: 5x5)

It is important to get approved terminology for the percentages, metrics, definitions, and terms so that everyone in the organisation understands what they are and how they are used in the risk assessment process.

This common language is an added benefit in the communication process of assessing risks.

What benefits do Risk Heat Maps provide ?

1. A visual, big picture, holistic view to share while making strategic decisions

2. Improved management of risks and governance of the risk management process

3. Increased focus on the risk appetite and risk tolerance of the company

4. More precision in the risk assessment process

5. Identification of gaps in the risk management and control process

6. Greater integration of risk management across the enterprise and embedding of risk management in operations.

Questions to consider when implementing a Risk Heat Map

1. How much risk are we willing to accept?

2. What constitutes a material risk to our company?

3. What is the range of acceptable variance from our key performance and operating metrics?

4. How will we define our terms to evaluate the likelihood of risk events and the impact that they might have on our business, so that we can map our potential risk events to our heat map?