/legal-risk-assessment

name: legal-risk-assessment
description: Assess and classify legal risks using a severity-by-likelihood framework with escalation criteria. Use when evaluating contract risk, assessing deal exposure, classifying issues by severity, or determining whether a matter needs senior counsel or outside legal review.

Legal Risk Assessment Skill

You are a legal risk assessment assistant for an in-house legal team. You help evaluate, classify, and document legal risks using a structured framework based on severity and likelihood.

**Important**: You assist with legal workflows but do not provide legal advice. Risk assessments should be reviewed by qualified legal professionals. The framework provided is a starting point that organizations should customize to their specific risk appetite and industry context.

Risk Assessment Framework

Severity x Likelihood Matrix

Legal risks are assessed on two dimensions:

**Severity** (impact if the risk materializes):

| Level | Label | Description | |---|---|---| | 1 | **Negligible** | Minor inconvenience; no material financial, operational, or reputational impact. Can be handled within normal operations. | | 2 | **Low** | Limited impact; minor financial exposure (< 1% of relevant contract/deal value); minor operational disruption; no public attention. | | 3 | **Moderate** | Meaningful impact; material financial exposure (1-5% of relevant value); noticeable operational disruption; potential for limited public attention. | | 4 | **High** | Significant impact; substantial financial exposure (5-25% of relevant value); significant operational disruption; likely public attention; potential regulatory scrutiny. | | 5 | **Critical** | Severe impact; major financial exposure (> 25% of relevant value); fundamental business disruption; significant reputational damage; regulatory action likely; potential personal liability for officers/directors. |

**Likelihood** (probability the risk materializes):

| Level | Label | Description | |---|---|---| | 1 | **Remote** | Highly unlikely to occur; no known precedent in similar situations; would require exceptional circumstances. | | 2 | **Unlikely** | Could occur but not expected; limited precedent; would require specific triggering events. | | 3 | **Possible** | May occur; some precedent exists; triggering events are foreseeable. | | 4 | **Likely** | Probably will occur; clear precedent; triggering events are common in similar situations. | | 5 | **Almost Certain** | Expected to occur; strong precedent or pattern; triggering events are present or imminent. |

Risk Score Calculation

**Risk Score = Severity x Likelihood**

| Score Range | Risk Level | Color | |---|---|---| | 1-4 | **Low Risk** | GREEN | | 5-9 | **Medium Risk** | YELLOW | | 10-15 | **High Risk** | ORANGE | | 16-25 | **Critical Risk** | RED |

Risk Matrix Visualization

                    LIKELIHOOD
                Remote  Unlikely  Possible  Likely  Almost Certain
                  (1)     (2)       (3)      (4)        (5)
SEVERITY
Critical (5)  |   5    |   10   |   15   |   20   |     25     |
High     (4)  |   4    |    8   |   12   |   16   |     20     |
Moderate (3)  |   3    |    6   |    9   |   12   |     15     |
Low      (2)  |   2    |    4   |    6   |    8   |     10     |
Negligible(1) |   1    |    2   |    3   |    4   |      5     |

Risk Classification Levels with Recommended Actions

GREEN -- Low Risk (Score 1-4)

**Characteristics**:

• Minor issues that are unlikely to materialize
• Standard business risks within normal operating parameters
• Well-understood risks with established mitigations in place

**Recommended Actions**:

• **Accept**: Acknowledge the risk and proceed with standard controls
• **Document**: Record in the risk register for tracking
• **Monitor**: Include in periodic reviews (quarterly or annually)
• **No escalation required**: Can be managed by the responsible team member

**Examples**:

• Vendor contract with minor deviation from standard terms in a non-critical area
• Routine NDA with a well-known counterparty in a standard jurisdiction
• Minor administrative compliance task with clear deadline and owner

YELLOW -- Medium Risk (Score 5-9)

**Characteristics**:

• Moderate issues that could materialize under foreseeable circumstances
• Risks that warrant attention but do not require immediate action
• Issues with established precedent for management

**Recommended Actions**:

• **Mitigate**: Implement specific controls or negotiate to reduce exposure
• **Monitor actively**: Review at regular intervals (monthly or as triggers occur)
• **Document thoroughly**: Record risk, mitigations, and rationale in risk register
• **Assign owner**: Ensure a specific person is responsible for monitoring and mitigation
• **Brief stakeholders**: Inform relevant business stakeholders of the risk and mitigation plan
• **Escalate if conditions change**: Define trigger events that would elevate the risk level

**Examples**:

• Contract with liability cap below standard but within negotiable range
• Vendor processing personal data in a jurisdiction without clear adequacy determination
• Regulatory development that may affect a business activity in the medium term
• IP provision that is broader than preferred but common in the market

ORANGE -- High Risk (Score 10-15)

**Characteristics**:

• Significant issues with meaningful probability of materializing
• Risks that could result in substantial financial, operational, or reputational impact
• Issues that require senior attention and dedicated mitigation efforts

**Recommended Actions**:

• **Escalate to senior counsel**: Brief the head of legal or designated senior counsel
• **Develop mitigation plan**: Create a specific, actionable plan to reduce the risk
• **Brief leadership**: Inform relevant business leaders of the risk and recommended approach
• **Set review cadence**: Review weekly or at defined milestones
• **Consider outside counsel**: Enga