THE IMPORTANCE OF RISK MANAGEMENT IN A CONSTANTLY CHANGING BUSINESS ENVIRONMENT.

How Risk Management Works: The Risk Management Process

The process of risk management is not always very straightforward, and sometimes it's hard to know where to start. Understanding the risk management process will ensure you're following a best practice method and lay the foundation for a more mature approach to identifying, assessing, and responding to risks in your projects and organization.

You know what they say, “A little risk management goes a long way.” And do we agree with that? Without risk management, there's no way to guard against the unexpected scenarios that may occur throughout a project or in your organization as a whole.

1. Working with team members, identify and define the risk areas.
2. In terms of probability and impact, how likely is it that each risk will occur?
3. How would each risk affect your project, for better or worse? What are the pitfalls or benefits to consider?
4. With a clear understanding of probabilities and impacts, what approach do you recommend taking in response to each?
5. Who is responsible for implementing each response?
6. When will each plan be implemented?
7. Will this approach prevent or lessen the impact of each risk on your project? If not, can a further response be taken to manage those risks?

Takeaway: The key to implementing these steps successfully is communication. All team members should communicate with one another about potential risks as well as how to identify and assess them.

The Risk Management Process works in a cycle of planning, control, data collection and reporting. The Planning Stage is the most important part of the process as it sets out what measures are going to be taken by the involved parties.

One of the most important steps in your risk management process is to define the project's risk areas. You do this by working with team members to identify and document your risks.

Risk Management Steps:

The Risk Management Process is defined as the process of identifying, assessing, developing responses and monitoring risks. The planning stage is the most important part of the process as it sets out what measures are going to be taken by the involved parties.

Identify the risk.

There are many benefits to identifying and anticipating possible pitfalls of a project. One of the biggest is that it helps you as a leader and your team understand what might go wrong on any given project. This can help you plan ahead and prepare for potential problems, which will ultimately save time, money, and resources in the long run.

You don't have to feel like this process is all doom and gloom either—it's actually an incredibly positive experience! By asking everyone to identify risks they've either experienced before or may have additional insight about, you're creating opportunities for communication across departments that fosters cross-functional learning.

You can also use a risk breakdown structure to list out potential risks in a project and organize them according to level of detail, with the most high-level risks at the top and more granular risks at the bottom. This visual risk management strategy will help you anticipate where risks might emerge when creating tasks for a project.

Once you have compiled possible issues, create a project risk log for clear, concise tracking and monitoring of risks throughout your projects. 

Analyze the risk.

During this step, your team will estimate the probability and fallout of each risk to decide where to focus first. Factors such as potential financial loss to the organization, time lost, and severity of impact all play a part in accurately analyzing each risk. By putting each risk under the microscope, you'll also uncover any common issues across a project and further refine the risk management process for future projects.

Prioritize the risk.

The next step in the risk management process is prioritization.

Prioritization determines which risks focusing on first and what kind of support those risks will need from the team.

The next step in the risk management process is prioritization.

Prioritization determines which risks to focus on first. This is important because we have to accept resources are generally limited and two risks are often not equal or equivalent in nature.

A common approach applied here is to rank risks by their unique likelihood and impact to a project. This method will allow you to achieve a holistic view of the project and it's portfolio of threat sources.

Interestingly, the process of prioritisation will often help you identify workable solutions for each risk so that you can plan a treatment protocol for your threats before project interruption occurs.

Treat the risk.

Treating risks effectively often results in using your team's resources in the most efficient manner, you also reduce the chance of derailing your project from the outset. As time goes on, you should be building a database of past project risk logs that forms a knowledge set to help you resolve future problems. This will ensure you anticipate possible threats in a more proactive way, rather than reacting to situational hazards in a haphazard manner.

Monitor the risk.

Clear communication among your team and stakeholder pool is essential when it comes to ongoing monitoring of potential threats. And yet, while it may feel like you're herding cats when communicating to stakeholders, especially when they have different interests, a solid risk management plan massively helps keep tabs on specific moving targets..

The most crucial organisation risks you need to know:

Cost Risk  

Every project has cost risk, which is the chance there will be more expenses than originally planned. All projects start out with a budget, and if you’re not accounting for all the costs of a project upfront, you could end up overspending on a project.

Operational Risk

Operational risk is present in all projects, in all operating environments, and is sometimes anchored to the process in play. It usually stems or is acerbated from poor implementation but can also include procurement, production, and distribution risk sources.

In short, this risk is part of a performance or quality risk because the expected outcome doesn’t happen at all or in the way we wanted.

Operational Risks tend to be more prevalent on larger projects involving longer periods of time and greater numbers of people and organizations.

We are finding Knowledge Management helps reduce the challenges presented by this risk source, especially when many people are involved in a project.

Market Risk

Market risk can include risks posed by commodity prices, interest rates, foreign exchange markets and liquidity and event credit risks. These kinds of market risk can be unpredictable and difficult to plan for, but on the other hand there are ways in which Risk Managers can protect their business against losses from these threats.

Strategic Risk

Strategic risk is another type of performance risk. Issues result from mistakes made when planning or forecasting, such as selecting project management software that doesn’t work well in your operations. In the era of digital transformation, a major strategic shift or change can be implemented through the use of new evolving technologies.

With our Risk Management Masterclasses, you'll learn how to make sure that you're not only aware of any possible threats to your project, but also have a strategy in place for addressing them. We'll help you build the tools to keep your project running smoothly and safely!

We're a team of professional advisors dedicated to risk management and auditing. Our goal is to help you minimize financial losses, reclaim your time, and focus on the real aspects of your business. Over our long careers, we've seen what works and what doesn't; now, we want to pass that knowledge on to you, so you can thrive and do what you do best without having to deal with the risks that stand in your way.

Protect your biggest investments by enrolling in one of our 7 Risk management courses planned for this upcoming year. 

Chief Risk Officer

Risk Based Audit

Operational Risk Modeller

Operational Risk Practitioner

Strategic Risk

Operational Risk Expert

Enterprise Risk Manager

Credit Risk Specialist

Enterprise Risk Management Expert

Fraud Specialist

Quantitative Risk Based Auditor

Contact us at  training@causalcapital.org