Risk Management Process and Risk Management Plan
What is Risk Management?
Risk Management is the process of managing risk in business in order to minimize or avoid the unfavorable and uncertain events in business. Making the right business decisions, developing business plans with risk management taken into consideration and developing business management system and processes that are able to manage risk are the goals of risk management.
The art of risk management is identifying the risk, defining the risk in terms of business scenarios and coming up with risk management strategy and tactics to avoid and/or minimize risk. While there are always events and outcomes that are out of the company’s control there are always ways to manage the controllable in order to minimize risk and manage the variables and drivers of business risk.
Risk Management Plan
Taking risk is part of developing successful business – developing new products, developing new business, entering new markets… are all risky. The goal of risk management is to assess the risk of different business alternatives and compare the different risk vs reward scenarios.
There are no rewards without taking risk in business so risk is part of everyday business management. Examples of different types of risk in business include financial risk, project risk, market risk, operational risk such as safety risk, security risk, data management risk… and some of them can be controlled and manage by the organizations but some of them are driven by external factors that are outside of the organizational control.
For example keeping or losing a key customer for your business is not fully controlled by your company however managing the relationship with this customer and creating value for the customer are practices you take in order to minimize the risk of loosing your key customer.
Risk Management Process
The most important part of risk management and minimizing risks in business is identifying the risk and coming up with practices to manage the risk.
The process of risk management includes:
- identify risk
- assess the risk
- define alternatives and scenarios for risk management and different outcomes
- minimize the risk.
In some cases the risk is unavoidable and must be taken as part of the business for example bad debt is part of business and this risk is part of your budget – of course there are ways and approaches to minimize this risk as well however you can do that to a certain extent only.
In other cases risk can be owned by a vendor or supplier and risk management is achieved through contracts and negotiation as well as insurance practices.
Yet in other cases certain investments in assets or best practices can help business organizations manage the risk such as data management risk and safety risk in business processes.
Having a good risk management plan will help your business avoid or minimize a big part of the uncertainty and risk in your business so you should always consider the risk and come up with a risk management strategy and tactics. Always identify the business risk, make an assessment of the risk and prioritize risk to develop your risk management plan.
Business managers deal with different types of risk at any time for example legal risk, financial risk and operational risk is part of every business project, process and system and the risk management plan should take into consideration all of them and prioritize them before the risk management plan is developed. Once you do that based on your business you will come up with alternatives to manage your risk successfully.