5 steps in the Risk Management Process
He who is not courageous enough to take risks will accomplish nothing in life. – Muhammad Ali
Risk is not an unknown phenomenon for us. Every aspect of life involves risk and there is no option but to take it. One may say that business is synonymous with risk and there is no denying it. When a particular person wants to start a business, they have it in mind that there is a good chance that it may not take off as planned and that there is a certain amount of risk involved.
Risk and its management have nothing to do with the size of a business in question. For instance, a sole proprietor who owns a shop of fruits and vegetables. Such a person has to factor in things like a strike or unavailability of transportation for the delivery of fruits and vegetables to his point of pick-up. Further, say that there is a flood on a particular day. Such a risk also has to be evaluated in order to minimize the damage that it poses. So to say, risk analysis and management is something that each of us does in his own life to safeguard our interests.
Such a process is also applied to an entire company on a more elaborate and detailed level. When this is done, the company is said to have been carrying out the process of risk management. Essentially, risk management is defined as the identification of potential risks in advance, their analysis and necessary precautions for reducing these risks.
Different kinds of hazards have a different kind of response. Similarly, the risk management process for different potential risks is different but a general outline which more or less sums up how one can go about managing risks is available. The following are the 5 steps that can be adapted to make a detailed risk-management plan.
Identification of Hazards
To begin with, to plan ahead and anticipate the management process for any kind of risk, one will have to identify the sectors or departments that could give rise to a potential hazard. A particular legal order or a new rule passed by the finance department of the country or even a missing document could be the root of a potential threat to the company.
Recognition of the Parties that might be Affected and How
After the key areas that could cause a potential hazard are identified, one can easily single out the persons and processes that might get affected due to this problem. After this, the extent of damage caused to these entities should be evaluated. This will help determine the amount of resources and time that should be allocated to the potential risk.
Evaluation of the Risks and Control Measures
The next step in the process is to evaluate the extent of the risk and the magnitude of damage that it will leave behind. This will further help us in the employment of control measures for the anticipated risks. For instance, there could be a risk that can be completely averted thus saving loads of money and time of all the parties involved. There could be another problem which cannot be solved at all and there is a cent percent chance that it will. For such a risk one can allocate monetary aid to relieve the damage.
Recording of Findings and their Implementation
Once the process of evaluation is done and certain control measures are assigned, record these for further use and implement those which can be implemented at that period in time. Certain anticipated risks may require a speedy response. Thus, the execution of the charted steps has to be done with keeping in mind the time factor.
Review of the Assessment and its Update if Necessary
This is the final step in the management of a potential risk and could turn out to be the most important one. The extent of damage caused by and the very occurrence of a risk could change over a period of time. Thus it is important to keep a check on the entire process and make changes as and when required.
On a concluding note, there is no way to avoid risk absolutely. Your best bet is to deal with it efficiently. As Mark Zuckerberg said, “The biggest risk is not taking any risk. In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
Writer at Digipundit
Mrunmayi Gaikwad, soon to be a wielder of the scales of justice, harbors a twin passion for law and for poetry. Writing is more than just a hobby for her – it is a release. Mrunmayi is an avid reader and hopes to have her own personal library someday. Her family and the city of Mumbai are two pillars of her life.