The 7 steps involved in effective risk management
Risk management is not something to be implemented overnight. It is a lengthy process, comprising of at least 7 steps. It generally involves identifying and controlling potential loss and hazards to the company. It is a standard practice adopted by operations, investments, programs, and commercial agreements.
photo/ ClkerFreeVectorImages via Pixabay.com
The seven steps in a typical risk management process involve:
-
Identification
This is where stakeholders are given a chance to identify and document potential hazards. With diverse stakeholders identifying the risks, you end up with a list of comprehensive hazards which helps provide for its thorough control.
-
Analysis
However it is not enough to just identify the dangers. You also have to analyze them because different hazards pose different threats. You need to conduct a thorough analysis of them for the development of vital context information.
-
Probability and impact
With the analysis taken care of comes the next step, comprising of assessing the probability and dangers of each risk. It comprises of single high, medium and low estimates of the probability of impact of the individual hazards. It may also include its associated probability distribution.
-
Risk treatment
It is when you know the probability and impact of the involved dangers that you can come up with the better and most effective treatment options for them.
Possible treatment options include its acceptance, mitigation, avoidance, sharing or transfer, which is determined based on the dangers involved. However, the low impact and low probability risks are usually not treated because there anyway is only a low chance of them occurring.
-
Taking care of any residue
As the phrase suggests, this is the part where all associated residual risks are assessed. This includes taking care of any possible secondary hazardswhich result from its mitigation, transfer or sharing.
-
Risk control
Treatment will never provide a complete solution. Like any other problem like an infestation, you must control and prevent its possible recurrence. This is where risk control comes in where all the associated risk sharing, mitigation, transfer and avoidance steps are identified and implemented.
-
Monitor and review
It’s not enough to just assess, eliminate and control dangers. There is always the possibility new ones cropping up once again. This is why there is a need to continuously identify any new hazards as time passes. The implementation of controls was also monitored and all dangers are periodically submitted to stakeholders.
You can read more here to find out all about risk intelligence and control.
Author: Lucy Hale
