Handling Process Risk Categorization and Prioritization

Risk categorization

Risk-based testing is a preferred approach for many industries. Especially in banking and financial industries, where the applications are updated and released at regular intervals, risk-based testing helps identify the risks to ensure system quality at the early stage of the project. Risk-based testing requires thorough test planning, preparation, and execution. One of the critical steps is to identify the risks through the different testing methods and categorize them accordingly. This article is a detailed study of different strategies and action plans for risk-based testing; and how to handle process risk categorization and prioritization.

Risk Prioritization

Prioritizing risks is crucial for creating a framework for allocating resources. The overall order of recognized risk events, their probability of occurrence, and their effect assessments are arranged in a risk prioritization analysis to create a most-to-least critical sequential order of identified risks.

For risk impact assessment and prioritization, a variety of qualitative and quantitative methodologies have been developed. The analysis of likelihood and impact, the building of a probability and impact matrix, risk categorization, and risk frequency rating are among the qualitative methodologies used (risks that have multiple impacts). The weighing of cardinal risk assessment of consequence, probability and timeframe, probability distributions, expected monetary value analysis, and modeling and simulation are examples of quantitative methodologies.

To use these strategies for identifying potential implications, defining inputs, and interpreting data, expert judgment is critical.

Risk Impact Assessment and Prioritization

Risk impact assessment is a procedure in which we assess the probabilities and consequences of possible risk events if they are found. The results of the assessments are helpful in prioritizing risks for establishing a ranking based on critical importance. This ranking of risks in terms of their critical importance is what determines the insights into the project’s management on how the resources would be needed to manage or to mitigate the realization of high probability and high consequence risk factors.

For some projects, the effects of the risk on organizational goals and tenets are more meaningful to the managing body. Risks must be dealt with against the potential negative effects on the organizational goals. The use of risk management tools for the organization and its components can help with the consistency of risk determination.

Law Of Diminishing Return

According to the law of diminishing return, a decreasing marginal output of production can be caused by an additional amount of a single factor of production. The law considers other factors to be constant.

Monitoring Risk: Risk Tracking and Risk Assessment

Most enterprises hold normal risk assessments on a regular schedule. Most often, these are annual occurrences, but it is ideal to monitor the ongoing risk mitigation and state of identified risks as a continuous activity.

We, as humans, monitor and react to risk constantly in our daily lives; therefore, one should deal with an organization’s risk mitigation in the same way. It’s a smart strategy to perform periodic risk reviews in advance. One should make time each month to review the highest probable and largest impact risk along with the mitigation strategy that allows for continuous improvement through risk tracking and risk management.

Risk Identification

Risk identification is the process of identifying risks that could prevent the enterprise or investment from achieving its goals. It includes documentation and communication of the concerns.

Program risk assessments, risk assessments for supporting an investment choice, examining an alternative, and assessing operational or cost uncertainty factors are only a few examples of risk assessments. To assist risk-informed decision-making, risk identification requires matching the type of assessment necessary.

The first step would be to identify the project goals and objectives, therefore developing a common understanding across the team of what is needed to complete the project successfully.

The goal of risk identification is to identify the events that may occur early in the process and may have negative effects on the ability of the project to achieve the required performance or capability for the outcome of the goals.

Risk Mitigation Planning, Implementation, and Progress Monitoring

Risk mitigation planning is the process in which options and actions are developed for enhancing opportunities and reducing threats to project objectives. And risk mitigation implementation is the process in which risk mitigation actions are executed. Risk mitigation progress monitoring consists of keeping track of the identified risks, identification of new risks, and evaluating the risk process and its effectiveness throughout the project.

The risk mitigation stage involves the development of mitigation plans designed for managing, eliminating, or reducing the risk to an acceptable level. Once a plan is implemented, it is constantly monitored to assess its effectiveness with the intent of revising the needed course of action.

Risk categorization in project management is the process of classifying risks based on their sources, areas of the impacted project, and other helpful categories for evaluating which parts of the project are most vulnerable to risks or uncertainties.

The common root of the causes is also used for risk categorization. This unusual project management technique aids in the identification of project work packages, phases, activities, and roles that may be used to construct an effective risk response strategy.

The basic goal of risk categorization is to avoid unpleasant setbacks.

It also results in a systematic and structured method for recognizing risks on a consistent basis. Another benefit is that it allows management to concentrate on recognizing a wide range of dangers. Conducting sessions with participants to work with a specific risk category is good for risk assessment.

Since diverse projects often involve distinct sources of risks and procedures, it’s impossible to define a one-size-fits-all risk category for all projects. Nonetheless, the project manager should construct the necessary number of categories for risk classification.

Test Coverage

Test coverage is defined as a metric that measures the amount of testing performed by a set of tests. It consists of gathering information about the parts of a program that are executed while running the test suite to analyze which branches of conditional statements have been taken. Simply put, it is a way of making sure that your tests are testing your system, or in other words, determining how much of your framework is effective by running the test.

What does test coverage do?

Text coverage performs the following functions:

  • It finds the area of the requirement not implemented by a set of test cases.
  • It helps in creating additional test cases to increase overall test coverage.
  • It identifies a quantitative measure of test coverage that works as an indirect method for quality check.
  • It identifies meaningless test cases that do not increase test coverage.

Yethi’s risk-based testing approach

Yethi follows a methodical risk-based testing approach by selecting test scenarios based on importance to customer & securityfinancial impact, the complexity of business logic, and integration points. We review business processes, business products, applications, and integration. We design test processes to bring high reusability and offer automated business process simulation for high-risk areas. 

We maintain a risk parameter based on our analysis of the business process, risk indexing and set of products. Our risk parameter consists of regulatory, financial impact, customer servicing, operations, and system risk classifying the risk levels into different categories based on the parameter. Finally, we prioritize the test cases based on risk parameters and risk level categories. We test banking and financial applications following a risk-based approach, which requires us to have expertise in handling risk categorization and prioritization.

Handling Risk & Compliance in Payment Systems

Risk categorization

Payments are synonyms for banks and financial institutions. It forms the very existence of the BFSI sector, which means that the industry can never meddle with the intensities and contingencies of the payment systems. Daily payments and transactions worth billions of dollars take place, which exposes the process to multiple risks simultaneously.

As the payment system is steadily shifting to the digital platform, it further raises a serious threat and concern regarding the security of the payment platform. Fraud and operational risks are high in payment innovations. Organizations are doing their bit to control the risks and threats, but it is not quite enough to ensure the complete security of the transaction and payment systems. There are three categories of risk in the payment systems. Let’s look at what are those.

  1. Fraud – A payment transaction that is carried out in a deceptive way and leads to huge financial loss. This kind of payment transaction falls under fraud risk category.
  2. Operational – The different types of human and technical errors that interrupt the clearing and settlement of a payment transaction may lead to financial loss. This kind of payment transaction falls under operational risk category.
  3. Legal – When the rights and obligations of payer and payee engaged in payment transactions are subjected to considerable uncertainty, it may lead to loss. This kind of transaction falls under legal risk category.

A brief on payment systems

Payment and financial transactions are contracts exchanged between two or more parties in the form of cash or services. A work of a payment system is to manage and settle the financial transactions and keep a record of such transactions for future reference. The exchange is made possible by modules that include instruments, people, institutions, rules, standards, procedures, and technologies. The most common payment system is an operational network that links people to bank accounts and exchanges monetary values and services through registered financial hubs.

Earlier, the payments and transactions were exchanged in more conventional ways. But with digitalization, a digital payment system has emerged. Today there are multiple payment instruments and channels like RTGS (Real Time Gross Settlement), IMPS (Immediate Payment Service), NEFT (National Electronic Funds Transfer), AEPS (Aadhaar-enabled Payments), UPI (Unified Payments Interface), SWIFT, SEPA, Wallets, Card Payments, ATM/POS transactions, Internet Banking, Mobile Banking, Third-party apps, Kiosk, and Micro ATM. Each payment system has its protocol or procedure, whether physical or electronic, and each one must be regularized and tied to compliance.

Managing risk in the payment systems

Before we learn how to handle risk in the payment systems, we must understand what payment risk is and what is the risk in payment systems. Let us explore them one by one. There are two types of risk in financial transactions – credit risk and liquidity risk. When one party does not receive the outstanding amount in the transaction process, this is credit risk; and the liquidity risk is when one party owes an amount but is unable to pay on time. Payment risk arises when a company incur loss due to some unforeseen payment events. Since businesses have long shifted their focus to digital transactions, a massive volume of online transactions and payments happen on the digital platform, which exposes them to payment risk.

Many companies have been fighting continuously against these frauds with their strong management strategies. But it is hard to remain resistant to the payment risk or forgery. It is hard to determine if a transaction is approved or if there is any fraudulent activity involved. However, an inaccurate evaluation can lead to a serious predicament like harming a company’s reputation and the monetary loss that may become hard for companies to overcome. Hence, managing the risk of a company by identifying threats, monitoring, and controlling to minimize the negative impact of risk on the company becomes an essential step.

Various sources affect the company, such as technology issues, financial uncertainties, legal liabilities, management errors, natural disasters, accidents, and more. All these can lead to risk in payment systems. With so much risk involved in payment systems, it is only fair to adhere to the rules and regulations and remain compliant with the guidelines. Risk and compliance go hand in hand. Risk is linked with the area of uncertainty, which focuses on the internal issues of an organization, while compliance is linked with adherence, which focuses on the external regulatory bodies.

What is Payment Compliance?

Shifting to digital payment has made many organizations and government to be more vigilant with the payment systems. They are more stringent in setting up guidelines now. For payment systems to remain compliant with the rules and guidelines issued by the government, company must follow a specific set of industry standards for risk avoidance. It is an essential step, which allows organizations to protect their payment systems from risk and fraud by reducing data breaches, cyber threat and more. It protects the companies’ data, improves goodwill, and avoids several fines.

Digital payment systems from the past few years have created uncertainties for financial institutions. As the payment systems have become digitalized now with the emergence of internet banking, smart cards, and mobile banking, banks and financial institutions are embracing laws and regulations to remain more compliant with the changes in the payment systems. Financial institutions study the compliance guide to payment systems thoroughly and understand the rules about all types of payment systems before offering guidance to the customers. The below mentioned are types of payment compliance,

  1. Payment card industry data security standard:

Under this type, a set of standards are developed to ensure that all companies accepting, storing, processing, and transmitting credit card information maintain secure methods of doing so. The PCI security standards council upholds it. The standards are made to protect such companies from high-risk merchant accounts.

  • Merchant ScanXpress software:

This method of compliance automates the underwriting and onboarding process. For each merchant, it provides you with a calculated risk scorecard for helping most of the businesses for avoiding risk.

  • KYC compliance:

It is compliance that involves identifying and verifying client details before opening their bank account. Monitoring and verification checks are conducted periodically. For risk-free businesses, merchants must follow the process of KYC compliance.

  • AML compliance:

The full form of AML compliance is anti-money laundering compliance that protects companies from criminal monetary activity and international transactions fraud. The rules of such compliance help detect the suspicious activity of money laundering and terrorist financial attempts.

Apart from the ones stated above there are also a few more that deserves a mention, as it ensures that the payment system remains compliant.

  • Money/currency
  • Bank checks
  • Smart cards and stored value products
  • Mobile banking
  • Allocation of loss for check fraud
  • ACH networks and NACHA Rules
  • Remittance instruments
  • Credit union share drafts
  • Credit CARD Act and disclosure requirements
  • Automated teller machines (ATMs) and automated intake of ATM deposits
  • Letters of credit
  • Internet transactions
  • Corporate account takeover
  • CFPB regulations regarding international transfers & CFPB changes to Regulation Z
  • FRB gift card rules
  • High-to-low debit posting
  • CFPB investigation of overdraft programs
  • Unfair, deceptive, or abusive acts and practices (UDAAP)
  • Payable through drafts & Documentary drafts
  • Wire transfers, including security procedures for in-person wire transfers and defences to unauthorized wire claims
  • Responsibilities of ODFIs and RDFIs regarding high-risk originators and questionable debit activity
  • Unlawful Internet Gambling Enforcement Act
  • Online authentication, including single-factor authentication resulting in bank liability
  • Home banking
  • Consensual security interests in deposit accounts

Importance of testing while handling risk in payment systems and maintaining system compliance

The national and international regulatory entities update payment systems with changes very frequently. As a result, banks and financial institutions are always left with challenges to incorporate those changes in very short notice. The systems in banks and financial institutions may face heavy damage if they are unadaptable to these changes. They always come with certain challenges and if banks fail to update their systems with these regular changes, they will fail to satisfy their customers.

Testing offers strong support that helps the organization to remain updated with sudden changes and always remain in the forefront to handle risks. Testing helps in finding out how well the systems in banks work. It also aims to find out errors in the system programming. Testing at regular intervals is also compulsory for maintaining a risk-free company while handling compliance with many payment methods. There are many different types of testing: UI/UX Testing, Functional TestingPerformance Testing, Security Testing, Integration TestingAcceptance TestingData Migration TestingRegression Testing, and more, which validates that the system functionalities in fastidious situations like quick change in payment system guidelines. After testing all the pros and cons of the company, reporting is the last process that must be followed.


The only purpose of risk management is to identify problems and apply different measures to reduce them. Banks and financial institutions must follow laws and regulations to prevent fraud and risk impact. Systems and software being an integral part of banks and FIs, they must be obligated to payment compliance. Only testing can validate the system functionalities and performance. It ensures that they remain compliant with the payment systems guidelines.

At Yethi, we have tested the payment systems for national and global banks, NBFCs and other financial institutions. We have tested various functionalities of payment systems across multiple channels like internet banking, mobile banking, wallets, agency banking, ATM/POS, wallet apps, third-party apps, KIOSK, and micro-ATM. We use different API levels as middleware/switches to connect with Core Banking and other gateway/networks. We have executed functional testing, interface testing, performance testing, API testing, and security testing to validate the processes like customer onboarding, customer authentication through a pin, biometrics, and token, payment initiation, multi-level authorization, payment processing, and inquiry and statements.

Our 5th generation codeless test automation engine, Tenjin, automates the entire software testing lifecycle from execution to build and manage, continuous delivery and defect reporting. Tenjin can execute test cases across applications and devices. It has various adapters and has a provision for adopting new application adapters within a few weeks. It can identify actual defects versus expected defects for field values and validate structured messages in SWIFT. Tenjin has a UI to define test cases and offers continuous support in the delivery pipeline. It can detect and report defects with ease.

Risk-based testing for bug prevention to bug detection

The primary intent of conducting software testing is to uncover the bugs, assess them, and identify the associated risks. This approach will enhance the software cycle-over-cycle, mitigate risk, and allow smooth business operations to reflect an improved business revenue.

The testing volume increases faster than deploying the new functionalities. There is no need to test the old capabilities frequently to ensure that the new functionality doesn’t create any discrepancy in the system. Also, various stakeholders might have a different view of “risks” than developers or testers (not just probability of failure, but impact); hence, it becomes critical to carry out risk-based testing for bug prevention and detection.

Risk-based approach helps,

  • Identify high-risk areas
  • Direct testing efforts
  • Early detection for high-risk failures
  • Lower regression errors (no degradation in functionality that was working)

Testing of pre- and post-development codes help in identifying and resolving the bugs in the system; thereby, it will help mitigate risks quickly and efficiently. It is to be noted that risk-based testing is not limited to bug prevention and detection alone. After the complete code of the software is written, the testing experts can also identify issues based on their expertise, knowledge, and experience when the software is in the development or designing phase. However, no software should go without risk-based testing in the deployment phase, as it can cause technical issues or corrupt the database and applications.

Difference between Bug Prevention and Bug Detection

Bug prevention and bug detection in software are two different constraints with regards to the aspects of before the code is written and after the code is written, respectively. Bug prevention is the practice of discovering issues before the coding for any software is completed. With bug prevention, concerned individuals can rethink the design so that the code possesses the ability of risk mitigation.

On the other hand, bug detection is the practice of uncovering unknown risks during and after the code is written concerning the impact of other distinct constraints on code. Through bug detection, coding teams can make changes in real-time to enhance the scope of software utilization and avoid any probability of encountering issues.

Concept of Risk-Based Testing – bug prevention and detection

Risk-Based Testing can be explained as a basis of prioritization of the test cases that are to be conducted on software. By documenting the significance of function, its likelihood of failure and impact in case of failure, testers can focus their efforts on areas that can have a significant negative impact.

The process of bug detection comprises analysis, prevention, and management, which will ensure that all the bugs and defects are identified and resolved before the software reaches the final users and prevent it from causing any issues in their system.

Further, bug/defect analysis, prevention, and management practices ensure that all the bugs/defects go through a pre-determined life cycle to be fixed and closed. The nature of the bug depends upon the resources it uses, and the effects cause the software to behave abnormally. The goal of bug analysis, prevention, and management practices is to identify the root cause and treat them. 

The root cause of the bug occurrence generally contributes to the factor of the bug. It needs to be mitigated and resolved to eliminate all the probability of recurrence of the concerning defect. However, the coding team needs to make sure the elimination of root causes should be affecting the performance of the software in any way.

The bug prevention and detection in the risk-based testing process concern the risk containment and mitigation aspects for the risk management process. The risk management process ensures that software is prepared to mitigate the risk whenever it arises during the risk-based testing process. It is based on predetermined programming that can minimize the adverse impact.

Risk Monitoring and Controlling

Risk monitoring and controlling is the process of tracking all the identified risks, such as monitoring residual risks, detecting the new ones, assuring risk plan execution, and evaluating the software ability and effectiveness to eliminate the risks. The risk monitoring and controlling process works throughout the software development life cycle by recording the risk metrics related to the implementation of contingency plans.

While carrying out risk-based testing, 75% of risks arising in test cases can be monitored and controlled, whereas 25% of risks in the test cases may remain undetected due to lack of exposure to application functionalities. Risk monitoring and controlling is a continuous process as new risks may arise by adding new functionalities in the ongoing software development lifecycle. An efficient risk monitoring and control process aims at providing necessary support. It ensures that all risk-based testing practices and robust communication are adapted for making effective decisions to mitigate risks proactively.

Overall, it can be stated that risk-based testing and its varied practices and processes ensure that software is deployed for use by the final users without any bugs or defects. Risk-based testing carries out the practices for bug prevention, bug detection, defect analysis, defect prevention, and defect management for eliminating every possibility of software misbehavior at the user’s end.

Risk-based testing also documents every risk and its triggers so that a risk mitigation plan can be executed as soon as any risk occurs, or trigger is activated. Risk-based testing works in real-time as it starts with the planning phase of software and ends when software is deemed ready for deployment after all the testing. Real-time working of risk-based testing ensures that all the bugs and defects are eliminated from the root causes before they adversely affect the performance of the software at the users’ end.

Yethi is your go-to all your software QA needs

Even a minor bug can adversely affect the software quality putting the brand reputation at stake. An excellent testing process can improve the quality of the software. At Yethi, we follow a process of risk categorization and prioritization. We offer automated business process simulation for high-risk areas to increase the efficiency, accuracy, and consistency of the banking/financial software.

We select test scenarios based on importance to customer & security, financial impact, the complexity of business logic, and integration points. Being a leading QA partner for banks and financial institutions, we have touched base in over 22 countries offering QA solutions for more than 80 clients worldwide.

Yethi’s test automation platform, Tenjin, is a 5th generation robotic platform that can efficiently carry out even the complex testing process with ease. It handles test execution, test management, and defect management at various stages to ensure accurate test results with excellent performance without compromising the critical aspects.