What is a process of managing a risk?

Organizations manage risks on a daily basis. The risk management process is one of the most important aspects of any company because it deals with the security of all the data present in the organization. The highest priority for companies when it comes to risk management were stated to be the enhancement of the quality, availability, and timeliness of risk data at 79%, and the enhancement of risk information systems and technology infrastructure at 68%.

One can never be sure of the likeliness of any event to occur and the consequences that will come with it. The likelihood of the event occurring and the impact of the same event are two factors that determine the magnitude of the risk.

Need for Risk Management Process

All project managers and team members need to learn how to implement necessary and systematic risk management processes. This will enable the entire organization to run their projects in a much smoother manner in the following ways:

• Improve all resource planning by predicting future costs
• Improve how companies track project costs
• Improve the accuracy of estimates of ROI
• A more flexible response to all future challenges

There are five main steps in the risk management process that organizations should follow, which include risk identification, its analysis, evaluation and treatment, and finally, constant monitoring of the risk. These steps are discussed in detail in the article below:

Identifying the Risk

The first step in a successful risk management process is to identify the type of risk the organization is currently dealing with or could deal with in the future.

Some of the different types of risks include:

• Strategic risk
• Compliance risk
• Market risk
• Regulatory risk
• Operational risk

It is important to identify all the different potential types of risks that the organization can face. These risks can be noted down manually but if there is a risk management platform implemented in the organization, the risk identification process becomes a lot simpler. The gathered information is directly inserted into the system.

Access to this data also becomes a lot simpler because the project managers and other team members do not have to request an email for this information. They can directly log in to the risk management system and see all the identified risks.

Analyzing the Risk

All the possible risks for the organization have been identified in the previous step, which will lead the teams to analyze these risks. The risk analysis should answer the following questions:

• What is the likelihood of these risks occurring?
• What will be the consequences of these risks to the organization?

During the risk analysis process, teams estimate the probability of each risk occurring and its fallout to prioritize the identified risks.

The factors that companies consider when prioritizing the risks include:

• Potential financial loss
• Time lost
• The severity of the impact
• Availability of resources to manage the risk

Risk analysis helps companies create their response to these risks depending on their severity. It also helps in understanding the link between the risk and the number of aspects of the business it will affect. To put it simply, the more business aspects at risk, the higher the risk to an organization. 

If companies use a manual risk management process, then this risk analysis takes place manually. If a risk management solution is deployed across the organization, then different documents, policies, processes, and procedures are analyzed by the solution to map the risk and create a framework for the next step, which is risk evaluation.

Evaluating the Risk

After completing a thorough analysis of risks, they need to be ranked in order of severity and then prioritized. When companies use a risk management solution, they already have different categories of risks in-built into the solution, which categorizes the risk based on its severity.

A risk causing minor inconvenience to the organization gets a low rating, whereas risks that can have a big impact on operations is considered to be high risk. Low risks do not necessarily need intervention from upper management, but high risks require immediate intervention.

When organizations use risk management platforms, they can help in identifying different workable solutions for each risk that the enterprise could face. This way all the projects in the organization and processes can go on uninterrupted and without any delay.

Treating the Risk

Once the risks have been analyzed and prioritized, it is time to take action. Every risk to the organization or the project needs to either be eliminated or contained. If the risk treatment is done manually, team members need to contact each stakeholder to discuss the issues. Usually, these discussions get spread out over email chains, various documents, and many phone calls, making the entire process longer and more difficult.

According to a study done in 2018, it was found that only 34% of institutions have the required security staff capable of identifying and resolving threats. This is why using a risk management platform is even more necessary today. 

When companies employ a risk management solution, the stakeholders are immediately notified by the application, and all the key decisions are made in one go. This way it becomes easy to monitor the progress of the solution.

One aspect of effectively treating the risk is the efficient usage of resources without losing the progress made in the active projects. Over time, organizations can create a log of all the projects, the risks faced, and the mitigation process. This will help in anticipating risks in the future so that the team members can be proactive in their risk management strategy.

Some of the common ways of mitigating risk include:

• Accepting the risk of the project, which means understanding the risk it poses but realizing that the benefits outweigh the negative outcomes of the risk
• Avoiding the risk in the project, where team members simply do not participate in an activity that could lead to potential risk
• Controlling the risk, where team members mitigate the risk by reducing the likelihood of its occurrence to reduce the impact beforehand
• Transferring the risk, where organizations get a third party involved (such as insurance) to take responsibility for the risk in case it occurs

Monitoring and Reviewing the Risk

Organizations will notice over time that there will be some risks that cannot be eliminated and will be omnipresent. These continuous risks can include external risks such as market risks and environmental risks. They need to be continuously monitored to make the mitigation process more effective. 

When companies employ risk management solutions, the system becomes responsible for monitoring the organization’s complete risk framework. If there is any change, all relevant parties get notified immediately. This also ensures continuity. When employees are properly trained in the processes, they can use the system efficiently.

Final Thoughts

The basic processes of risk management stay the same, regardless of whether the company does it digitally or manually. All companies, regardless of their size, face risks, and they need to successfully identify, evaluate, track, and mitigate the risks they face currently and in the future to improve their processes for their projects.

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