What Are 5 Steps in The Risk Management Process?
Whenever a new project comes in with it comes unknown risks. All these risks can be anticipated and finally mitigated with the help of risk management. Therefore, implementing the risk management process in all your projects is essential.
The main motto of risk management is to identify all the risks that your organization and the ongoing projects might face and guard against all those risks. With a little bit of structure, formalization, and a good understanding of the project and company, the risk management process will be rewarding for your business.
Five Steps of a Risk Management Process
Identify potential risks
The primary risk categories are hazard, operational, financial, and strategic risks. The hazard risks are those of injuries or fire breakout. The operational risk comprises supplier failure and annual turnover.
The financial risk includes the economic recession. And the strategic hazards include brand reputation and entry of new competitors. The risk management process helps identify the type of risk you can have and give solutions accordingly.
Analyze the Risk
A few risks might bring your business to a halt, while some other risks might cause some minor inconveniences. So every chance should be analyzed and find the potential disruption.
As soon as the threat has been analyzed, a link can be established between various factors in the company and the risks. This will help understand how many functions will be affected by the risks and act accordingly to reduce the severity.
Evaluate or Rank the Risk
The next step involves ranking the risk and also prioritizing each risk based on its severity. This lets the risk management see and then understand your organization’s total exposure to risks.
Treat Your Risks
Developing a risk treatment plan is essential for eliminating risks as much as possible. The team working on risk management should closely work to solve the risk or at least mitigate it.
The risk mitigation strategy must include:
- Avoiding the risk – Put a stop to activities that can cause hazards.
- Reducing the risk – Take relevant actions to reduce the reasons leading to threats.
- Share the risk – It is important to take insurance to cover the risk. Also, make contacts with other stakeholders who would share the costs of risk recovery.
- Accept the risks – You have to make sure that you acknowledge whatever troubles come your way and prepare some contingency plan to overcome the threat.
Once you start creating a risk register of past projects, you will be better positioned to anticipate future risks.
Monitor Your Risks
The final step is regularly monitoring, keeping track, and reviewing the risk mitigation results. It is to find out if the initiatives that have been taken were effective or some changes are required.
The risk management team will have to start with a new process if the earlier industry is ineffective. It is advised to avoid all sorts of impulsive reactions. A calm approach will help to minimize the effects of risks.
As an organization, if, with time, you gradually formalize the risk management process and develop a risk culture, then you become more adaptable and resilient to face the change that comes on the way.
Also, risk management will help you make better-informed decisions based on your company’s operational environment and finally build a better bottom line over the long term.