A risk is an uncertain event that might yield a positive or negative result. It is typically a cause for concern because of the uncertainty of an investment resulting in positive or negative consequences. Though there is no certainty with risks, every business-minded person and organization must take risks. Uncertainty is the bedrock of any risk.
How then do we manage these risks?
Risk Management Process
Risk management is the practice of identifying potential risks, critically analyzing them, and taking necessary steps to curb these risks. In risk management, there is a process flow. Five basic steps are taken in managing risks. Together, these steps deliver the risk management process.
Step 1: Identify the Risk
The first step in the management of anything is identification. To manage it, you need to first identify and discover risks that might affect your project or investment and its outcome. We have numerous types of risks- legal, environmental, regulatory, markets, and several others. At this stage, you prepare your risk register (this could be manually or it could be inputted on the computer system). This register is needed to determine the severity of these risks. You pen down these risks in your risk register to help see them at a glance.
Step 2:Analyse the Risk
After identifying the risks, it is important to consider the consequences of these risks on your organization. You have to understand the nature of these risks and how they would impact the organizational goals and objectives. This analysis should be inputted into your risk management register.
Step 3: Evaluate the Risk
It is important to prioritize risks depending on their severity. You rank the risks depending on their magnitude. Some risks are classified as low because their impact on the organization is minimal while the high risk has the potential to cause catastrophic loss. The high risks can lead to financial loss, reputational damage, or even loss of life. These risks often need management intervention.
Step 4: Treat the Risk
The process of treating risk can also be known as risk response planning. The highest-ranked risks are accessed and modified to achieve the barest form of the acceptable risk level.
At this stage, risk management measures are created. Preventive measures and contingency plans are considered and put into actualization.
All relevant stakeholders are contacted and everyone works together in treating the risks and reducing them to the barest minimum. At this stage, some risks are eliminated- such includes the risk of life and reputational damage.
Step 5: Monitor and Review the Risk
In risk management, it is important to note that not all risks can be eliminated, some risks will always be present. For instance, market and environmental risks can never be determined. A product that sells at $50 today could skyrocket to $80 tomorrow or reduce as low as $30 the next day.
Because we cannot control the market or environment, we need to understand that these risk factors would always be there and we should be well prepared to work around them.
By identifying and managing a long list of project risks, you reduce the chances of unpleasant surprises and bring out golden opportunities.
Risk management process and procedure helps to resolve challenges and problems when they occur because these challenges have been envisaged and plans to work around them have been put in place. This process negates surprises and mitigates against the fire brigade approach.
Risk management procedures help for happier, less stressed, and more productive team members as nothing can shock them.
Risk management helps you capture the opportunity in every project and minimize the impact of threats therein. Just as the boy’s brigade, it is important to “Always be prepared”
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