Risk management refers to a method for identifying and evaluating risks and implementing a plan, with preventive and curative actions, which aims to minimize and control these risks and their consequences for the organization. A risk corresponds to a probability of damage.
Within the economic activity of companies, they are exposed to risks that must be understood, evaluated, and managed by the manager. He must therefore calculate the probability of the event and its consequences and propose solutions to deal with them. It is also important to manage so-called “favorable” risks to reproduce the benefit that has a positive impact on the business.
To minimize risks, a company should employ strategies to lessen the impact of negative events and maximize positive outcomes. A consistent and organized approach to risk management helps identify, address, and reduce significant risks effectively.
Having a strong risk management system that uses various assessment tools to develop and classify risks to evaluate and resolve them can be of great help:
The stages of risk management
- Plan risk management
- Identify risks
- Analyze the risks
- Prioritize risks
- Control the risks
- Monitor risks
Raise awareness among risk management stakeholders
Plan risk management
It is important to plan for risk management. To do this, it is necessary to determine the tasks to be carried out and establish responsibilities based on these tasks. It is the company’s management that must take charge of this risk acceptance policy for the entire structure. A different manager will also be assigned to each risk management task for greater responsiveness in the event of a risk materializing.
Identify risks
Risks must be identified and described, whether financial, operational, or linked to the activity, projects, or the market. For example, risk identification may include assessing IT security threats, such as malware and spyware (ransomware), accidents, natural disasters, and other potentially dangerous events that could disrupt the company’s business activities.
We must exploit collective knowledge and experience and therefore question employees about the risks they have had to face in the past. They must be recorded in a risk register or documented in another form. The risk register is also called the “project risk log”. It helps manage the organization’s current risks, but also allows you to find the risks of previous projects. Using this registry, the team can identify and assess a project’s threats quickly and efficiently.
The quality of the analysis will depend on knowledge of the context. The team will therefore need to specify the people affected by the risk, their environment, the equipment involved, the dangers, the scenarios, and the damage. It is also necessary to review the risks already known, the controls implemented, and good practices such as guides or regulations, technical possibilities, and limits.
Analyze the risks
Potential problems have been identified, so these risks need to be analyzed. To do this, it is necessary to determine the probability of a risk and its repercussions such as financial losses, lost time, or its severity. Assessing the importance of risk can be done using an internal audit and risk analyses. It is necessary to define the acceptable level of risk and determine the elements to be treated as a priority. There are two types of assessments, qualitative and quantitative. The qualitative assessment takes into account the level of severity based on the probability and impact of the event. The quantitative evaluation takes into account the financial impact or benefit of the event. Both of these elements are necessary for a comprehensive risk and opportunity analysis.
The analysis of each risk makes it possible to highlight the problems common to an entire project. It will also be possible to refine the organization’s risk management process for future projects.
Prioritize risks
The organization now needs to establish priorities. It must therefore classify each risk taking into account its probability of occurrence and its potential impact on the project. This allows you to have an overview of the project, to target the points on which the team needs to focus, and to define interesting solutions for each risk.
The team must therefore question the elements present in the risk register, the risks which are most likely to occur, and which would harm the success of the organization. It is important to manage the most likely and most serious risks. It will therefore be necessary to monitor all risks and manage them, but above all pay particular attention to priority risks.
Control the risks
After determining the priority level and importance of the risks, they must be controlled or minimized. To do this, an appropriate response strategy must be established. The company will then have to define the risk reduction measures applied in order of effectiveness. It is possible to completely eliminate the risk, use means of protection, implement prevention, compensate for the risk if it is not reduced, and inform the stakeholders. You need to know when to stop controlling or when the risk is sufficiently controlled. To establish this deadline, the risk management manager will rely on two types of criteria.
The theoretical criterion: the residual risk is lower than a predefined threshold, set by the standard or by regulation.
The practical criterion: when the company cannot concretely do more to control the risk.
Monitor risks
It is important to monitor risks by using consultant risk advisory experts on an ongoing basis. This will ensure the effectiveness of risk mitigation plans and be alerted to the most significant risks. Indicators must be correctly chosen to monitor and detect these risks. These indicators are not fixed and constantly evolve to fully understand the risks, that is to say, the risks observed must reflect the indicators chosen.
To choose these indicators, it is necessary to take into account the need to improve risk estimation, the means of detecting risks, the availability of indicators on comparable or correlated risks, their forms, or the means of collecting data.
Raise awareness among risk management stakeholders
It is necessary to communicate with the various stakeholders in order to make them aware of the risk levels and to make them understand the risk control measures. All departments and all employees of the company must be made aware. In this way, there will be a reciprocal exchange, which will allow information and problems to be relayed. You can take the help of professional risk management experts to plan different types of risks in a better way.
