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Newsletter

2021 5th Edition (Other Editions)

Risk management is the prerequisite of maintaining business for any organization. Good risk management just requires structure, a little formalization, and a strong understanding of the organization and it can be rewarding.

Let’s look at the 5 Step Risk Management Process which can increase the chance of getting rewards:

1. Identify potential risks

• 4 main risk categories:
  • Hazard risks, such as fires or injuries;
  • Operational risks, including turnover and supplier failure;
  • Financial risks, such as economic recession;
  • Strategic risks, which include new competitors and brand reputation.
• Risk Identification methods:
  • By experience and internal history,
  • Consulting with industry professionals, and external research.
  • By interviews or group brainstorming

2. Measure frequency and severity

• Risk map: a visual tool that details which risks are frequent and which are severe
• To help you identify which are very unlikely or would have low impact, and which are very likely and would have a significant impact.
• To show you where to spend your time and money, and allow your team to prioritize their resources.

3. Examine alternative solutions

Organizations usually have the options to accept, avoid, control, or transfer a risk:

Higher stock price volatility often implies higher risk and investors may estimate the fluctuations that may happen in the future according to the statistics.

• TAccepting the risk:To decide some risks are inherent in doing business and that the benefits of an activity outweigh the potential risks.
• TTo avoid a risk: the organization simply has to not participate in that activity.
• TRisk control: prevention or mitigation, which is reducing the impact it will have if it does occur.
• TRisk transfer: To give responsibility for any negative outcomes to another party, as is the case when an organization purchases insurance.

4. Decide which solution to use and implement it

• Find the needed resources: like personnel and funding, and get the necessary buy-in.
• Senior management: to approve the plan, and team members will have to be informed and trained if necessary.
• Set up a formal process to implement the solution logically and consistently across the organization, and encourage employees every step of the way.

5. Decide which solution to use and implement it

• E.g. If an organization gradually formalizes its risk management process and develops a risk culture, it will become more resilient and adaptable in the face of change.
• This will also mean making more informed decisions based on a complete picture of the organization’s operating environment and creating a stronger bottom line over the long-term.

Source retrieved from: https://www.clearrisk.com/risk-management-blog/bid/47395/the-risk-management-process-in-5-steps-1