Risk is a part of every business and is something that cannot be ignored or swept under the rug. When it comes to risk management, there is a clear five-step process organisation should follow in order to ensure effective and efficient risk management.
These steps include:
Step 1: Identify risks
It is essential for organisations to anticipate any possible pitfalls of every project. There are four main risk categories of risk, which include hazard risks, operational risks, financial risks and strategic risks. Being able to identify what type of risks you have is essential to the risk management process. Teams need to work to uncover, identify and describe the risks that might affect the project and its outcomes. It is also vital for companies to remember that the risk environment is constantly changing; therefore, how risks are identified needs to be revised regularly.
Step 2: Measure risks
During this step, organisations need to access the likelihood of a risk occurring and what the impact would be. Many organisations choose to assess this through a visual tool like a heat map. This helps companies visualise which risk are frequent and which are severe. This helps organisations identify which risks need more attention and resources. By assessing all the possible risks, businesses are able to find out where to spend their time and money. This allows teams to develop an understanding of the nature of the risk as well as its potential to affect company objectives and goals.
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Step 3: Examine solution
Once the potential risks have been identified and ordered, companies can start to analyse solutions to those risks. They will have the option to accept, avoid control or transfer the risk.
If an organisation accepts the risk, it means that they think the benefits of an activity outweigh the risks. This can often be the route businesses decide to take when the risk is small as risks are inherent in doing business; therefore, not all risks can be avoided.
Avoiding the risk means that the organisation has decided to completely avoid the activity and therefore eliminate the risk it poses.
Controlling the risk involves working to reduce the likelihood of the risk occurring or reducing the impact the risk will have if it does occur.
Transferring the risk is when the organisation will give the responsibility for any negative outcomes to another party. This is the case when the organisation buys insurance.
Step 4: Implement a solution
Once all of the potential solutions have been identified and assessed, the one that the company feels is the most likely to achieve positive results must be selected. The team will then need to get the relevant resources together in order to implement the chosen solution. A formal process should then be put in place which will implement the solution in a logical and consistent manner.
Step 5: Monitor results
Once the solution has been implemented, organisations need to monitor the results. These results will then assist in determining the effectiveness of the chosen solution and deciding whether or not changes need to be made to the solution to make it more effective.
By going through this process multiple times, organisations can start to formalise its risk management process as well as develop a risk culture. This will allow businesses to become more resilient, easily adaptable as well as more informed in their decision making.