The first step in risk management is to identify the risk. The risk management process has five steps, and it will all be discussed in this article. However, identifying the risk is usually first, as you have to research the potential risks that can affect the business or project.
In any business, you need to carry out risk management. Some businesses have a risk management department that consists of the risk manager and risk executives. These people are always on the lookout for potential factors that can lead to a downfall and try to salvage the situation before it gets out of hand. These are factors that can affect and attack a company’s capital and interest.
But, that is not to say that a business cannot be involved in risk management practices if they do not have a risk department. Sometimes, the department that gets involved in risk management goes by a different name. What matters is that they engage in this process and secure their business.
We have seen that brands that engage in risk management strive better than businesses that do not engage in risk management processes. It is because they are putting preventive measures in place and securing the foundation. After all, to be forewarned is to be forearmed.
As you read on, you will see some common terms associated with risk management, and we will also break down all the steps and stages in the risk management process.
So, if you know a business, it is best to jot things down as the information in this article will always come in handy.
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Below Are Some Terms In The Risk Management Process That You Should Know:
|Risk Hazard||It refers to the severity of the risk or possible threat.|
|Governance||These are policies set in place to ensure the management and monitoring of organization activities. In addition, it serves as a guide to the risk management team.|
|Risk Appetite||It refers to how much risk the risk management team or business is willing to take.|
|Risk Frequency||As the name implies, it is how often a risk occurs.|
|Compliance Risk Profile||It is a document of policies, laws, regulations, and internal policies and what could result in penalties, fines, increased costs, lost revenue, and sanctions.|
Stages In The Risk Management Process
There are usually five stages in the risk management process.
Risk Identification: The risk identification stage is the first step of the risk management process. It is at this stage that you can pinpoint the different risks that you will manage. After all, you cannot manage something unknown. Usually, the risk management team comes together to brainstorm and highlight the different factors they think can be a risk to the project or company. The identification process is sometimes immediate, while other times, it can span over a week. The risk management team usually tries to ensure that they exhaust all factors that could pose risks so that nothing will come back to haunt them in the future as it concerns the project. Understandably, the team may sometimes be stuck in identifying the various risks, and it is not out of place if they consult with people from other departments. We even see that organizations can sometimes conduct a survey to get the opinion of other people. As the team identifies the various risks, they note them down and get back to them later. Typically, there should be a documentation book for noting down such information. If the list gets lost, then they will have to restart the process.
Risk Analysis: After getting and identifying the various potential risks to a company, business, or project, the next step is to analyze such risks. Sometimes, it could be one risk, or there could be more. However, it would be best if you analyzed all of them. A risk manager or the risk management team can analyze risks either qualitatively or quantitatively. A qualitative analysis comes from the angle of the risk’s impact on certain events that are tied to the business. But a quantitative analysis refers to the impact of the risk on the financial aspect of the business. A school of thought believes that risk management refers to the factors that can affect a company’s finances, which validates the quantitative analysis aspect of risk analysis. So, risk analysis is a vital step in the risk management process that you must not miss. It would help if you analyzed the various possible risks as that is the only way you can think up solutions to managing these risks. You will also be checking out the likeliness of the risk to occur and how frequently it will happen. These are necessary points you will need to draw up a plan to tackle the risks.
Risk Prioritization: So, suppose the risk management team identifies many risk factors and potential threats. There is a need to do a prioritization scale to know the ones that will get immediate attention. It is like sorting out your wants and needs. Of course, you would not be able to solve everything at once. So, a prioritization scale comes to play, acting as a guide in your action course. Therefore, the team prioritizes these risks and may even present them to the heads within the organization, with a rationale for the prioritization. Yes, there should be a reason you want to attend to risk W before attending to risk O. It would not make sense to say that you are making a random selection. Naturally, some risks would be more severe than others. Sometimes, you may not even need to act on a particular risk. What matters at that moment is to monitor until you see a change. And the change can be positive or negative. If the change tilts negatively, that is when you need to take action. So, you will need to prioritize the different risks with reasons. Now, you will not be taking the bull’s approach in finding solutions to the risks.
Risk Treatment: Some experts say that this is the best and fun part of risk management as it is the stage where they get to tackle the risk. They often liken this stage to what happens during a war. So, you have team members keeping an eye on the enemy team, tracking them, spotting their weaknesses, and much more. Once they feel they have identified the weaknesses, they get to analyze and make plans. After that, they can certify that they are ready for battle. It is the same with risk management as you have identified the risks, and it is time to find a solution. After all, every business wants a successful project, and they do not want any threat that affects their finances. So, the risk management team gets to treat the risks before it gets to any of the sour stages. From your priority scale, you can tell which risk you would be dealing with first until you are clear of all the possible threats. Yes, some risks may prove difficult to treat. In such a case, you can create a diversion for it, letting the risk go for other possibilities that do not involve your business.
Risk Monitoring: This is the last stage in the risk management process steps. Contrary to public belief, this is not a stage where the team gets to relax. Instead, it is that stage where the team ensures that they are alert. Every team member will need to pay attention to details at this stage as it is the only way to get success. The risk monitoring stage is when the risk management team looks out for the risks after deploying strategies to treat/eliminate the risks. Here, they get to confirm if their strategies and techniques worked or not. If the plan was to eliminate the risk, it is at the stage that the team checks if the plan worked or not. During the monitoring process, the risk and threat may surface again. If this happens, it means that you are still dealing with the risks, and the team has to go back to the drawing board to get better and stronger plans. But if the risk does not pop up again, the team can pat themselves on the back and term their mission successful.
Some frequently asked questions are
What Are The Five Steps In The Risk Management Process?
The five steps in the risk management process are:
1. Risk identification
2. Risk analysis
3. Risk prioritization
4. Risk treatment
5. Risk monitoring
What Is The First Step In The Accident Study?
The first step in the risk accident study is the accident data collection step. Here, you can get all the necessary information that helps you take action.
Is The First Step In Project Management Answer?
No, the answer stage is not the first step of project management. The first step of the project management process is project initiation. It is where you lay the foundation to begin the project.
The risk management process is vital to all organizations. However, it is best to remember that the risk identification stage is the first step whenever you want to engage in the risk management process.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.