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Risk Assessment for Franchises - A complete guide

Risk assessment is a detailed study and evaluation of uncertainties, events, scenarios that can be of potential risk while carrying out an activity. It is an effective process that helps organizations whether big or small to proactively design policy of effectively managing day to day workplace risks.

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Every year, millions of people around the world are injured or face serious health hazards at their workplace. Are you aware that as per an ‘International Labour Organization’ ILO survey 2.3 million people globally succumb to accidents or diseases at work, which culminates into approximately 6,000 deaths everyday. 

What can organizations do to avoid these accidents? Risk assessment can be a good pre-emptive measure to minimize such mishaps and make the workplace a safe and healthy place. 

What is a Risk Assessment?

Risk assessment is a detailed study and evaluation of uncertainties, events, scenarios that can be of potential risk while carrying out an activity. It is an effective process that helps organizations whether big or small to proactively design policy of effectively managing day to day workplace risks.

Evaluating risk is a day-to-day thing that we all do, for the smallest of things from buying a piece of equipment for home to evaluating risk for the industry. It is beneficial for any kind of commercial establishment to perform regular assessments. A good risk assessment program must ensure the following:

  • All relevant risks (immediate and long-term) have been taken into account
  • Safety measures adopted are relevant to the risk involved
  • All findings of the risk assessment have been properly documented
  • Regular reviews as per the schedule are done

A risk assessment has three components, let us understand these with the help of an example:

A restaurant manager walks into the kitchen in the morning and sees that someone has left the freezer open and the things inside have defrosted. 

Hazard identification: A hazard can be understood as anything like the device being used, any material, or process being followed. Here, the manager identifies the hazard as an open freezer. The hazard in this case is the process not being followed.

Risk: Risk is the likelihood of someone getting harmed. In this case, whoever consumes the items from the freezer will be at risk. 

Risk Assessment: It is a systematic examination of all aspects of the hazard

  • What can cause harm? Consumption of food kept in the freezer can cause harm.
  • Impact: High risk (as many people would feel unwell eating that and the taste won’t be up to the mark).
  • Control measures: To check and discard everything that is spoiled.

This example just shows that risk assessment is an everyday occurrence. One needs to constantly be aware of the same. In a work environment the risk can have a ripple effect on many people or multiple things. Hence the need to be updated about the risk. 

For an organization it is important to identify and assess the risks that are relevant to their success.

It is important to know how to conduct a risk assessment in an effective way, once you have an understanding of what risk assessment means

How to conduct a risk assessment?

Risk assessment involves the following 5 steps:

Step 1: Identifying the hazards.

Step 2: Who may be harmed and how?

Step 3: Evaluate risks and develop relevant control measures.

Step 4: Duly record all the findings/information.

Step 5: Review the assessment report and make amendments if necessary.


Step 1: Identifying the hazards

There is a thin line between ‘risks’ and ‘hazards’. You need to understand the same to accurately identify hazards. Risk means the likelihood of a harm to happen. Hazard is something that has the potential to cause harm.

You can identify hazards by conducting a survey with your team about their day to day working. Another way is to walk around the floor and make notes and observations of the hazards. For example, in a cafe’s kitchen wet floors because of water leakage in the kitchen sink can be a potential hazard.

Step 2: Who may be harmed and how?

You have now identified the hazard. Now, you need to analyse who all can be affected and how. Continuing with our example of wet floors because of water leakage let's identify the people at risk of being harmed. All those working in the kitchen are at a risk of slipping and falling down. This could result in both major and minor injury depending on how the person falls down.

Step 3: Evaluate risks and develop relevant control measures

You now know the potential hazard. You also know who can be impacted and how. You are also aware of the severity of the impact. Is there a way this hazard can be minimized or avoided. In our scenario, this can be avoided by getting the leaking kitchen sink repaired or replaced to avoid any spillage and hence no wet floors.

Step 4: Duly record all the findings/information

It is always good to maintain a proper detailed record of all your findings. This helps you in future audits and also equips you with sufficient data to plan your schedule of repair and maintenance activities. You are also better equipped as a business owner to see unforeseen expenses. Timely measures and planning can help you save a lot of wasteful expenditure and maintain your expenses at an optimum level.

Step 5: Review the assessment report and make amendments if necessary

Some areas in the workplace are always bustling with activity. As a result, wear and tear is high and so is the need for regular repair and maintenance. So for the best interest of your business, have your risk assessment activity on a regular basis and make the necessary changes from time to time.


Why is risk assessment important?

Life is full of events, some good and some not so good. Many of them might be undesirable and at times not even in our control like the pandemic the world is engulfed in. We always try our best to avoid them. It is the same for the organisations. Keeping  a track of unforeseen events helps organizations to prepare for the worst. This is where risk assessment comes as a winning tool for business strategy. Some of the advantages of risk assessment are: 

Create awareness of hazards involved

Until the team brainstorms and works together the potential risk can be missed out. Assessing the risk makes it a habit for the team to look out for the risk. 

Eliminates the uncertainty

“Risk comes from not knowing what you are doing." says Warren Buffet. It is essential to know the internal and external risk. For a hotel, a supply chain disruption is an external risk. How can they mitigate it quickly is the solution to the problem. Once they are aware of the issue the allocation of supplies can be bifurcated, or alternate sources can be identified and activated if such a need arises.

Reduce losses

Any event that causes disruptions of services is a loss to the organisation. To mitigate and control is always a lesser cost. 

Having your key resources trained on ‘Risk Assessment’ will always be favourable for you as an organization. A safe and healthy workplace is the way forward for a successful business.

 
Ever imagined, if there could be a tool which could simplify the exercise of doing a risk assessment? Well, the good news is that a “Risk Assessment Matrix” does just that.

What is a Risk Assessment Matrix?

Risk Assessment Matrix is an integral part of the risk management decision making process. “A Risk Matrix is a tool to conduct risk assessment. It helps to identify or define the level of risk, by taking into account the category of probability against the category of consequence of severity.” In a simple language, a risk matrix is a pictorial representation of risks impacting a project. The risks are depicted as a graph. At one end are highest level risks, at one end are the lowest level risks, and in the middle are medium risks.  The matrix depicts various risk levels by color codes and increases their visibility. This is instrumental in decision making.

Given below is a specimen of a simple 3x3 matrix:

Image source: https://www.stakeholdermap.com/risk/risk-assessment-matrix-simple-3x3.html


This kind of a simple matrix can be applied to assess risk in situations where a new software has to be implemented or a system upgrade has to be done. Being a fairly simple matrix, this can be used in many risk assessment scenarios and is instrumental in identifying high, medium and low risks at a broader level. All these factors can be more meticulously assessed with the help of a more detailed matrix.

A “Probability and Severity matrix” is the same as a “Risk Assessment matrix”. It helps minimize the probability of potential risks and thereby facilitates optimum performance. The basic fundamental of using a Risk Assessment Matrix is to identify what low, medium and high implies for your project.  

Although there are many ready to use standard risk matrices available,  most organizations would need to either customize these or make their own risk matrix depending on their individual projects and needs. 

We have understood what the risk assessment matrix is? But how do we create and use a Risk Matrix in the real world? Let’s dive in.

How to conduct risk assessment using a Risk Assessment Matrix?

The starting point of any risk assessment is to define the objective and scope. The matrix can be used in a variety of situations to assess the risks involved in various processes, like in a food packaging unit, retail outlet trading in dry snacks, groceries and takeaway packaged foods like sandwiches, hotdogs etc. Salons and spas, gym, self service food outlets, bars, restaurants and cafes. Let us understand applying the matrix with the help of an example.

“The objective of using the risk assessment matrix is to identify risk involved in the day to day functioning of a commercial kitchen. The scope is to cover all aspects like receiving raw materials, storing, hygiene standards in the kitchen, cooking techniques and the overall safety of all people involved in the kitchen activities.”

Having clearly defined the objective and scope let us move on to the first step.

Step 1: Identifying Hazards

Sit with your team and brainstorm and note down all potential hazards possible in a fully functional commercial kitchen. It could be a fire accident, someone falling down due to water spillage on the floor, food in the fridge getting contaminated in case of a power failure, raw material getting expired due to over stocking etc. Stealing or pilferage of food items by staff. This list should be comprehensive. Based on the identified hazards, start building your risk matrix. A specimen is given below:


All the identified risks should be listed under the “Risk” column in the matrix.

Step 2: Calculate the probability/likelihood of the hazard to occur

For each hazard identified calculate the probability of occurrence. This can be calculated as a percentage or frequency (number of times) the hazard may happen. Probability or likelihood of an hazard should be accurately mentioned under the appropriate category as defined below:

  • Unlikely: An unlikely hazard refers to a hazard that is extremely rare. For example,  a power failure is a highly unlikely hazard. The chances of such an event may be say once or twice a year
  • Seldom: Seldom hazards refer to hazards that may happen say once in 3 months. For example, with proper planning and estimation having food products that are expired may seldom happen in a commercial kitchen. 
  •  Occasional: An occasional hazard refers to incidents that can happen not on a daily basis but say once in a month or so. For example, breakage of serve ware, is highly likely when the restaurant is serving at its full capacity due to shortage of time and probable mishandling of utensils
  • Likely: A likely hazard refers to hazards that have a high probability of occurrence almost on a weekly basis. For example, spillage of water or food in the kitchen, highly perishable food like vegetables, fruits and meat getting contaminated if over-stocked, kitchen personnel getting minor cuts or wounds while working etc. 
  • Definite: There are certain hazards which will occur almost every time, no matter what. For example, leftover perishable bakery items getting contaminated, pilferage of raw materials etc. 

Once you have identified the probability of occurrence of each hazard, list them in the probability/likelihood column under the correct category:


Step 3: Estimating the consequences

Once the probability has been calculated, the outcomes or consequences of those hazards can be calculated. The consequences or loss can be monetary, physical or qualitative or a mix of both. Based on the severity, consequences can be classified as:

  • Insignificant: These refer to those hazards and their outcomes which poses no real threat. 
  • Marginal: These hazards and their outcome cause minimal damage, the monetary and physical impact is not that huge.
  • Moderate: Consequences of these hazards can cause a sizable damage which cannot be ignored.
  • Critical: These are hazards which must be dealt with immediately as these can lead to irreparable damage.
  • Catastrophic: These are hazards that may lead to consequences that can lead to a permanent loss. For example, a faulty electrical equipment in the kitchen or a leakage in a gas pipeline is something that can lead to a major accident like fire. These need to be dealt with immediate effect

Enter all details pertaining to consequences properly categorized in the “consequence” column.

Step 4: Calculating Risk Rating

You have now categorized your hazards and also its potential consequences. Basis these findings you can now calculate the risk for each hazard and rate them in the below categories:

  • Low
  • Medium 
  • High
  • Extreme

Rate each hazard based on your calculation as low, medium, high and extreme in the “risk rating” column. This could be quantifiable in percentage or simply categorizing under these heads.

Step 5: Creating an “Action Plan”

You have now identified the hazards, its occurrence probability, possible consequences and thereby established its risk posing severity. You may want to list out the preventive measures against each hazard under the “Action” column in the form as shown below:

 

Step 6: Mapping all the data into the “Risk Matrix”

Mapping all the data from the risk assessment form to the risk matrix simplifies the task of identifying and pinpointing major threats.

Let’s understand the colour coding and structure of the matrix:

 

Key features of the risk matrix:

  • A risk matrix has two axis
  • One axis measures the consequences of the hazard and the second axis measures the probability or likelihood of the occurrence of the hazard.
  • Green indicates low risk, yellow indicates medium risk, orange indicates high risk and red indicates extreme risk.

To effectively use the matrix, extract data from the assessment form and map or plug it into the matrix accordingly. 

Your risk matrix is now complete. You know which hazards need to be minimized and which hazards  require you to come up with a plan to avoid it completely. These are mainly those identified as critical and catastrophic. Whatever corrective actions you take, remember that risk assessment is something that needs to be reviewed from time to time. 

Plugging your data in the matrix simplifies the process and speeds up the decision making process. The convenience that a risk assessment matrix offers makes it an important tool in the process of risk management. 

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Risk Assessment tools

The hospitality industry works at a very fast and frenetic pace. Hence, the risk of getting injured is very common. As per the Health and Safety Executive, the hospitality sector reports significantly low numbers of work-related illness, but a high number of work related injuries.The most common injuries are:

  • Falls, slips and trips because of food, beverage or water spillage on the floor, curled corners of a carpet, inadequate lighting leading to a slip etc. 
  • Injuries because of lifting and moving heavy objects
  • Getting hit by objects, like minor or major cut by a knife. A heavy object falling down from a height, some tool or object getting dropped on the foot etc. 
  • Falling down from a height like a ladder during cleaning. 

Doing a proper risk assessment can help minimize such accidents. Using proper risk assessment tools can help you identify and rate the severity of the risk. Let us understand these tools.

Over the years a lot of research has been done on how to assess risk at the workplace. Risk assessment is important for any business be it a food retail chain, restaurant, fitness center, beauty clinic, manufacturing, construction etc. Risk assessment can be both ‘qualitative’ and ‘quantitative’.

Qualitative risk assessment is done taking into consideration the probability of a risk that might occur in the future. 

Quantitative risk assessment is done based on the result of qualitative assessment. It is a detailed number-based assessment. The risk is calculated in terms of quantities like cost, schedules etc. 

The effectiveness of risk assessment largely depends on the tools used in conducting the assessment. In this blog, we will discuss three tools that can be of great help in conducting an effective risk assessment. There are many tools specific to industries in addition to the ones we are discussing here. However, the below mentioned tools are highly effective and can be used by most organizations irrespective of the domain they specialize in. So, let’s get started:


Probability and Impact Matrix or Risk Matrix

Risk Matrix is a tool to conduct risk assessment. It helps identify or define the level of risk, by taking into account the category of probability against the category of consequence of severity.” In a simple language, a risk matrix is a pictorial representation of risks impacting a project.

How does a Risk Matrix work?

Risk can be understood as the potential impact multiplied by probability of occurrence. A risk matrix takes probability and impact as two components. The below simple matrix will help you understand this better.


‘Probability’ is shown on one axis and ‘Impact’ on the other axis. The matrix assigns a numeric value to each level of probability and impact. This enables you to derive values and calculate risk associated with different combination of values. Usually a risk matrix is a color-coded graph as shown here. Here, green depicts low hazard, yellow depicts medium hazard and red depicts high hazard. Being color-coded it helps people performing the assessment decide where to apply additional controls to bring down the risk to an acceptable level. The trickiest are the hazards falling under the medium category. The management needs to decide way ahead of time what level of risk is unacceptable falling under the medium zone.

SWOT Analysis

SWOT is an acronym for Strength, Weakness, Opportunity and Threats. Also known as SWOT Matrix, it is a framework using which an organization can assess internal and external factors that can affect it in a positive or negative way. It is a grid with four columns. Given below is a SWOT grid as an example:


SWOT analysis is often used as a tool for designing strategies, but it is an equally effective tool for risk assessment. How does it work? SWOT analysis can be used to evaluate your product or process for risk identification and its management in the following manner:

Brainstorm
  • Have a brainstorm session and identify all your business processes that give you an edge over the others. These are your strengths. 
  • Identify processes that are not robust and hence make you vulnerable. These are your weak areas.
  • Identify what factors you can utilize as a business in your favor. These are your opportunities.
  • Identify factors that can be a source of trouble for your product or process. These are threats.
Analyze the SWOT Matrix
  • Group together all similar factors that you identified during the brainstorming session and eliminate superficial or very low priority factors from the list.
  • Prioritize your strengths in a forced rank.
Identify risks
  • All the opportunities that you have grouped together are your positive risks. All identified threats are negative risks
Make a strategy
  • Devise a strategy such that it leverages opportunities, put the strengths to use to mitigate or avoid threats, leverages strengths by overcoming weaknesses and minimizes risks.

Once the SWOT analysis is complete, updating the project risk register with the risk-related information is important. Write down in detail the strategy for risks that have been identified as most significant. It is crucial to identify people who have the knowledge and expertise to identify the risks, implement and monitor proposed corrective actions as and when required. 

 

Failure Modes and Effects Analysis (FMEA)

The FMEA tool helps identify all the ways in which a product or a process can lead to a failure following the bottom to top approach. FMEA as a tool ensures that you have captured all the data that can lead to the failure of your product or process.

How does FMEA work?

Given below is a sample FMEA chart. Though there is no standard format for an FMEA chart. However, every identified failure and its effect is analyzed and rated on mainly three parameters, “severity”, “possibility of its occurrence” and “probability of detection”. A Risk priority number (RPN) is derived by multiplying these three ratings.



Formula for RPN = Severity X Probability X Detection

FMEA as a tool helps in many ways in risk management, like:

  • It provides a framework to identify potential risks in your product or processes.
  • It helps in evaluating risks in terms of severity, probability of occurrence, helps identify the possibility of a potential risk before the failure occurs.
  • It is an effective tool to decide which risks are the most serious.
  • It helps identify ways to reduce the most serious risks
  • As a tool it re-evaluates a risk to see if appropriate corrective actions have been done to reduce it to an acceptable level.

Decision Tree

A decision tree as a risk assessment tool helps you decide whether a critical hazard is critical or not. The decision tree supports the judgement of the team and assists in deciding how much control a hazard needs to eliminate it or bring it down to an acceptable level. This is how a simple decision tree looks like:


For using a decision tree effectively, the tree needs to be applied to every single risk at each process step. A simple decision tree will usually have three questions which you can answer as a ‘yes’ or ‘no’. Depending on the complexity of the process a few more questions can be added.

The Codex decision tree was developed to standardize the international food standards, guidelines and best practices. Given below is a specimen of the Codex decision tree:



This is a more exhaustive decision tree and facilitates a logical approach to devise corrective actions. It clearly exhibits how certain decisions have been taken. 

However, please note that it is important to review and repeat the entire decision tree assessment in case there are any changes in the process or regulations. 

Besides the tools mentioned here there are many more risk assessment tools available. The tools discussed here can be used by and large in all kinds of organizations. Few other popular tools are:

  • Bowtie Model (commonly used in manufacturing industry)
  • HACCP (widely used as a Food Safety risk assessment program)

Risk management is imperative for all businesses. It helps minimize risks however many organizations think of it as a one-time activity. But, in reality risk assessment is a repetitive and on-going process. Hazard identification needs to be done on a regular basis and corrective actions to reduce risks need to evolve with time. These tools help us take a systematic approach towards the entire process.