All businesses face risks. By following risk management steps, you can get an understanding of risks and mitigate them accordingly. Some businesses will choose to handle their risk management process manually, which will result in a lot of paperwork and documentation. To make the process as efficient as possible, you can utilise software to help achieve results.
Let’s take a look at what the risk management process covers, why it’s important and how to manage risk throughout your entire organisation.
The risk management process is a framework that specifies actions to be taken. It requires an upfront investment of time and resources, but should you need to carry out the plan, it will deliver its benefits by providing protection for your business.
With any business project or venture, identifying risks and tracking them will bring peace of mind, as well as the following:
These are the risk management steps:
At the start of the process comes identifying risks. There are various types of risks, including: legal risks, market risks, regulatory risks and environmental risks, to name a few. To identify risks, you can leverage internal history and experience, external research or hire consultants. It’s also good practice to include different members of the team to brainstorm potential risks.
When performing a risk management process manually, you’ll have to write each risk down. However, with a risk management software solution, you’ll be able to add each risk to the software. You can create a project risk register, which is an ongoing database of risk. This adds a layer of visibility so that stakeholders and team members with access can be aware of the risk at any time.
After you’ve created a risk register that identifies each risk, you’ll move into step two of analysis. Analysing risks involves determining the probability that a risk will occur, as well as the amount of impact it will create. Some risks are negligible whereas others could threaten the entire business.
By defining risk in these terms, you are able to prioritise which risks to focus on or allocate resources to mitigate. Some factors you’ll want to consider when analysing risks for their effects may include: financial loss, lost time, and severity of impact. This information will also be included in the project risk register and will serve as a historical database for future risk management.
Risk evaluation comes from determining the magnitude of a risk occurring. This allows you to then evaluate and rank the risk based on likelihood of the risk taking place and the consequence, considered together. Each risk can be categorised based on severity. In most risk management solutions, this will mean that a risk causing an inconvenience will have a low rating, whereas the highest rating would be catastrophic. By ranking risks, all parties within an organisation will have a better understanding of the risk exposure and be able to act accordingly. For example, upper management may be able to let their team manage low-level risks and only get involved to make pertinent decisions when a risk is ranked highly.
The real heart of risk management happens when you set out plans and processes to treat or manage risks. By having laid out the previous steps, you can involve those who are experts in each respective area and have their input for possible solutions or ways to mitigate risk. It's possible to fully accept low-level risks, or choose alternative paths to avoid them. However, many businesses will have to find ways to lessen risk, while accepting that some form of uncertainty will always exist.
Rather than having to have these delicate and important conversations across varied email threads and presentations, a risk management software solution can help to keep all the plans in a centralised location. Stakeholders will receive notifications and alerts from the system and the approval process will happen smoothly, without delay.
Furthermore, when risk is managed by way of using an automation solution like SolveXia, processes are automatically programmed and executed when specified thresholds have been met. This means, there’s no time delay, bottlenecks of key person dependencies, so you will be able to natively lessen the detrimental effects of risks by being prepared in advance.
No matter how well you manage and prepare for risks, there are certain types that will be ever present. Two examples of risk that always exist include environmental and market risks. However, with a risk management system, teams are able to keep an eye on risk factors in real-time. When you have a risk management framework in place, then the system can be designed to alert necessary parties when something needs attention.
Given the ability to constantly monitor the status quo and even forecast in advance, any team becomes equipped to face challenges and respond as needed. Having a risk management framework in place means that you are taking the necessary steps to de-escalate uncertainty and avoid surprises. Monitoring and reviewing risks can also benefit employee satisfaction as they are empowered to take action if needed, since the potential outcomes have already been considered and decisions have been made.
By seeing a risk management process in action, then it becomes clear why risk management is so valuable. Businesses undoubtedly face a myriad of risks, but those that deal with them effectively are able to remain competitive, minimise losses, and ultimately, come out ahead. No matter what size business you are managing, risk management provides you with a way to remain prepared.
It is also a useful tool to evaluate your current processes and highlight areas ripe for improvement. Oftentimes, there are ways to reduce risks without investing so much upfront, as is the case with deploying automation solutions like SolveXia. For example, a finance team that has to adhere to regulations and report its financial statements in a timely manner will deal with compliance risk on an ongoing basis. With tools like SolveXia, you can mitigate compliance risk by utlising the automation tool, thereby minimising error and avoiding bottlenecks.
The definition of risk management could vary by project. To illustrate, a large-scale project may require detailed planning for every type of risk that could arise. On a smaller scale, risk management could simply refer to a team prioritising and listing risks based on a scale of low to high.
In general, risk management covers the aspect of identifying, analysing and tracking risks such that an organisation is prepared in advance to handle the uncertainty they face. Enterprise risk management entails dealing with environmental, financial, market, regulatory, operational, and any type of risk that can affect an enterprise’s outlook.
Organisations may face hurdles when aligning the entire team to be prepared and deal with uncertainty. In order to manage risk throughout a business, regardless of size, there must be an approach to its organisational culture, which can be supported by technological solutions.
Creating a culture that can handle risk and overcome challenges begins with putting a risk management process in place and retaining a standard set of tools and training. When you get into a groove and can have everyone equally prepared and empowered, then each new project will be less stressful and risk-prone.
The unknown is often regarded with negative connotation. However, there is also positive risk, or upsides of undertaking anything that is uncertain. A positive risk refers to the good things that can happen in a project or business endeavour.
To respond to positive risk, you’ll start the process the same way that you consider negative risks - by identifying them. Then, you’ll want to exploit the risk, or do whatever you can within your control to boost the chance of the outcome occurring. This could mean allocating more resources or time to that aspect of the project. Just like you may share negative risk, you could look to share positive risk, too. To do this, address which departments or teams will be most affected or responsible for dealing with the positive risk. Then, spend more time in that department preparing processes to manage the upsides.
Following risk management steps will benefit your business by helping your team prepare for all types of risk. To get the most out of your risk management process, you can leverage risk management software, which will aid in increasing shareholder value, enhancing internal controls, reducing compliance risks, adding transparency and maintaining more efficient operations. Finance automation solutions like SolveXia can provide risk management and so much more.