Imagine this: you’re looking at your organization’s risk register, a list that’s supposed to help you manage and mitigate potential threats. But something feels off. The risks listed are vague, sometimes hard to quantify, and, oddly enough, some of them don’t even feel like actual risks. Sound familiar?

This confusion is more common than you think, and it stems from a fundamental mix-up—many organizations fill their risk registers with risk sources instead of actual risks. It’s like trying to track the weather by noting every cloud you see, instead of focusing on the coming storm. The result? A risk register filled with potential problems but no clear strategy on how to prioritize or mitigate them.

In this blog post, we’ll explore why this confusion happens, the critical differences between risks and risk sources, and how understanding this distinction can unlock more precise and effective risk management strategies.

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What Is a Risk?

A risk is an event or a process failure that could negatively impact your organization. Risks are specific and quantifiable, allowing you to measure their potential impact and plan accordingly.

Confusing Example 1:

• You log “data security issues” as a risk in your register. But wait—what exactly is the risk? A vague phrase like “data security issues” doesn’t tell you what could go wrong, making it nearly impossible to measure.

Clear Example 1: Data Breach

• Risk: A data breach where sensitive customer information is stolen.
• Why it’s a risk: It’s a specific event with clear consequences, such as reputational damage and financial loss, that you can quantify and assess.

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What Is a Risk Source?

Here’s where the confusion often arises. A risk source is the underlying factor or condition that makes a risk more likely. It doesn’t represent an event or failure, but rather how something could go wrong.

Confusing Example 2:

• You write “lack of training” in your risk register. But is that a risk? Not really. It’s a risk source because it increases the chances of something going wrong but doesn’t specify what could happen.

Clear Example 2: Lack of Training as a Risk Source

• Risk Source: Employees are not adequately trained in data security protocols.
• Why it’s a risk source: This doesn’t cause harm on its own but sets the stage for a potential data breach or other security failure. It’s the condition, not the event.

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The Dangerous Confusion Between Risks and Risk Sources

So, why does this mix-up happen? It’s easy to confuse risk sources with risks because they feel like potential issues. However, risk sources can’t be quantified in the same way as risks, and treating them as such dilutes the value of your risk register. You end up with a list of vague, hard-to-define issues that are nearly impossible to prioritize.

Think of it this way: It’s like going to the doctor and being told, “You might get sick because you haven’t been eating well.” That’s a source of risk, but without knowing what illness could occur or how severe it might be, it’s hard to take meaningful action.

This confusion can cripple your risk management efforts, leaving you with a bloated risk register that’s harder to manage and almost useless when it comes to decision-making.

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How to Tell if It’s a Risk or a Risk Source

To avoid this confusion, ask yourself two key questions when identifying a risk:

1. Is this an actual event or failure?
   • If yes, it’s likely a risk.
   • Example: A data breach is a clear failure with measurable consequences.
2. Does this describe a condition that makes failure more likely?
   • If yes, it’s probably a risk source.
   • Example: Outdated security software increases the likelihood of a data breach but isn’t the failure itself.

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Examples of Differentiating Risks and Risk Sources

Scenario 1: Cybersecurity

• Risk: Unauthorized access to your network, leading to a data breach.
• Risk Source: Outdated security software that doesn’t meet current standards.
  • The outdated software makes it more likely for a hacker to infiltrate your system, but it’s not the breach itself.

Scenario 2: Loan Origination

• Risk: Issuing fraudulent loans, leading to financial losses.
• Risk Source: Lack of comprehensive credit checks and internal controls.
  • The absence of proper checks doesn’t cause the fraud, but it increases the likelihood of fraudulent loans being approved.

Scenario 3: Workplace Safety

• Risk: Workplace injuries due to unsafe equipment.
• Risk Source: Inadequate maintenance and outdated safety protocols.
  • The lack of maintenance increases the risk of injury, but it’s not the injury itself.

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Why Getting It Right Matters: A Clean Risk Register for Better Decision Making

One of the most compelling reasons to differentiate between risks and risk sources is to keep your risk register clean and actionable. A risk register that’s cluttered with risk sources instead of risks will lead to:

• Poor Prioritization: Without understanding the actual risks, you won’t know where to focus your mitigation efforts.
• Unclear Mitigation Strategies: Risk sources can be broad and vague, making it hard to develop targeted solutions.
• Difficulty in Quantification: Risks can be measured and prioritized. Risk sources, on the other hand, are hard to quantify.

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Categorizing Risks by Their Sources: A Powerful Tool

Understanding and categorizing risks by their sources can streamline your risk management process. By focusing on the source of the risks, you can develop mitigation strategies that address multiple risks at once.

Example: Fraud Risk Source

Let’s say you identify “internal fraud” as a major risk source. This can lead to various risks across your organization:

• Risk 1: Unauthorized wire transfers.
• Risk 2: Fraudulent loan origination.
• Risk 3: Misuse of company assets.

By addressing the source (internal fraud), through solutions like improving internal controls or increasing oversight, you can mitigate all three risks effectively.

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Conclusion: Stop Confusing Risk Sources with Risks

When it comes to effective risk management, clarity is key. Risks and risk sources are not the same thing, and confusing the two can undermine the value of your risk register, making it harder to manage and prioritize risks effectively.

By recognizing what could happen (the risk) versus how it could happen (the source), your organization can create more focused mitigation strategies and build a risk management framework that works. So, the next time you log a potential issue, ask yourself: Is this a risk or just a source?

The answer could make all the difference.