What is risk management?
Risk management framework involves steps that help organizations identify potential risks, analyze them, and take corrective actions to eliminate or reduce the magnitude of the risk. For most of the digitized companies, IT security threats, data-related risks, and the risk management strategies to alleviate them have become the top priority.
Risk management process consists of steps that are implemented to minimize the adverse effects of accidental business losses on an organization. There are five key steps involved in an ideal risk management process. Read on to find out the steps involved in an ideal risk management framework.
Risk management process
Identify the risk
The first step in the implementation of a risk management process is to uncover, recognize, and describe the risks that could have an adverse effect the organization’s projects or its outcomes. Risk identification often proves to be a positive experience that the whole team can take part in and learn from. It is important to take the opinion of team members in any risk management framework. This helps to identify the possible risks to a project from each team member’s point of view. It is also vital to put together a work breakdown structure to clearly see all the necessary tasks in the project and where risks might emerge.
Once the risks are identified, the next step is to dig a little deeper and conduct an in-depth analysis of the risk. This includes finding answers to critical questions such as how likely are these risks to occur? And if they do occur, what will the aftermath be? It is essential to develop an understanding of the nature of the risk and its potential to affect project goals and objectives. Factors such as potential financial loss to the organization, severity of impact and time lost plays a part in accurately analyzing each risk.
Prioritize the risk
This is one of the most critical steps in the risk management process. This stage involves ranking each risk by factoring in both its likelihood of happening and its potential effect on the project. It not only provides a holistic view of the project at hand but also pinpoints where the team’s focus should lie and also identifies workable solutions for each risk. By incorporating this step in the risk management framework, project delays and interruptions can be avoided.
Treat the risk
Also referred to as risk response planning, this stage involves assessing your highest ranked risks and setting out a plan for treating or modifying these risks in order to achieve acceptable risk levels. Teams must create risk mitigation strategies, preventive plans, and contingency plans in this step.
Monitor and review risk
Clear communication among the team and various stakeholders of the organization is an essential element in monitoring potential threats. It involves closely monitoring and following up on both the risks and the overall plan, which helps to continuously monitor and track new and existing risks. The entire risk management process must be constantly reviewed and updated accordingly.
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