Five Steps of Risk Management Process in 2021
Organizations manage risks on a daily basis, whether physical or economic or perceived business risks. The risk management process is one of the most important aspects for any company because it deals with the security of all present in the organization. There are five basic steps that are taken to manage risk; these steps are referred to as the risk management process.
The 5 Step Risk Management Process
The first step is to identify the risks that the business is exposed to in its operating environment. There are many different types of risks – legal risks, environmental risks, market risks, regulatory risks, and much more. If you’re in the manufacturing or logistics sector, you might also have to deal with labour risks, safety risks, among others. It is important to identify as many of these risk factors as possible. It’s important to remember that the risk environment is always changing, so this step should be revisited regularly.
Once a risk has been identified it needs to be analysed. The scope of the risk must be determined. It is also important to understand the link between the risk and how different factors within the organization affect it. To determine the severity and seriousness of any risk it is necessary to study how many business functions the risk affects. There are risks that can bring the whole business to a standstill if actualized, while there are risks that will only be minor inconveniences in the analysis. Knowing the frequency and severity of your risks will help you quantify the cost of the risk and understand what resources may be required in risk prevention.
All identified risks need to be ranked and prioritized. Most risk management solutions have different categories of risks, depending on the severity of the risk. A risk that may cause some inconvenience is rated lowly; risks that can result in catastrophic loss are rated the highest. It is important to rank risks because it allows the organization to gain a holistic view of the risk exposure of the whole organization.
Once the risks have been analysed and prioritized, it is time to take action. Every risk to the organization or the project needs to either be eliminated or contained or mitigated. If the risk treatment is done manually, team members need to contact each stakeholder to discuss the issues. One key aspect of effectively treating the risk is the efficient usage of resources without losing the progress made in the active projects.
Not all risks can be eliminated as some risks are always present. Market risks and environmental risks are just two examples of risks that need to be continuously monitored. Under manual systems monitoring happens through diligent employees. These professionals must make sure that they keep a close watch on all risk factors. Under a digital environment, the risk management system monitors the entire risk framework of the organization. If any factor or risk changes, it automatically updates and it is immediately made available to the organisation for further evaluation and action.
Risk management is an important business practice that helps businesses identify, evaluate, track, and mitigate the risks present in the business environment. In the absence of risk management, businesses would face heavy losses because they would be blindsided by risks. At Unison, our experienced team of risk management experts work alongside your organisation and help improve your business performance by reducing risk and ensuring compliance. We have a successful track record in helping our customers introduce new risk management initiatives and lower the cost of risk.