What is a risk assessment matrix? A risk matrix is an abstract matrix used in risk analysis to determine the degree of financial risk by considering the classification of financial risk or probability against the classification of result severity. This is an easy mechanism to improve the visibility of threats and help management in decision making. The most common example is the matrix used by banks in determining the exposure levels to risk in mortgage loans. By considering each of the risks involved in the loan, banks have effectively determined which of these would yield the highest return in terms of profits and losses.
Another important factor in determining the effectiveness of a matrix is that the matrix must be as transparent as possible to prevent potential conflicts of interest in assigning the same risk to different financial instruments. While risk management involves matrices, risk assessment is not limited to the use of matrices but can also be achieved using more advanced analysis techniques.
