STEPS IN A SOUND RISK MANAGEMENT PROCESS
As a project manager or team member, you manage risk on a daily basis; it’s one of the
most important things you do. If you learn how to apply a systematic risk management process,
and put into action the core 5 risk management process steps, then your projects will run more
smoothly and be a positive experience for everyone involved.
STEP 1: Identify the Risk
You and your team uncover, recognize and describe the risks that might affect your
projector its outcomes. There are a number of techniques you can use to find project risks.
During this step you start to prepare your Project Risk Register.
STEP 2: Analyze the Risk
Once risks are identified you determine the likelihood and consequence of each risk. You
develop an understanding of the nature of the risk and its potential to affect project goals and
objectives. This information is also input to your Project Risk Register.
STEP 3: Evaluate or Rank the Risk
You evaluate or rank the risk by determining the risk magnitude, which is the
combination of likelihood and consequences. You make decisions about the whether the risk is
acceptable or whether it is serious enough to warrant treatment. These risk rankings are also
added to your Project Risk Register.
STEP 4: Treat the Risk
This is also referred to as Risk Response Planning. During this step you assess your
highest ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk
levels. How can you minimize the probability of the negative risks as well as enhancing the
opportunities? You create risk mitigation strategies, preventive plans and contingency plans in
this step. And you add the risk treatment measures for the highest ranking or most serious risks
to your Project Risk Register
STEP 5: Monitor and Review the risk
This is step where you take your Project Risk Register and use it to monitor, track and
review risk.
FOUR KEY CONCEPTS FOR EFFECTIVE RISK MANAGEMENT
1. Integrating risk into decision making
One of the most important tests of true risk management effectiveness is the
level of the risk management integration into decision making. ISAR research
shows that companies capable of systematically integrating risk management
into planning and budgeting decisions, investment decision, core operational
business processes and key supporting functions, achieve long-term sustainable
advantage.
2. Strong risk management culture
Human psychology and the ability of business managers to make decisions in
situations of great uncertainty have a huge impact on risk management
effectiveness. Most people, consciously or subconsciously, choose to be ignorant
of risks. A robust risk management culture is therefore fundamental to effective
risk management.
3. Disclosing risk information
Another criterion for effective risk management is the willingness and ability of
an organization to document and disclose risk-related information both internally
and externally. A mature company not only documents the results of risk analysis
in the internal decision-making processes, but also discloses information about
risk and their mitigation to relevant stakeholders, where appropriate, in external
reporting or on the company website. It is important to note that since actual
risk information may be sensitive and contain commercial secrets, the focus of
disclosure should not be the risks themselves but rather on the risk management
framework, the executive commitment to managing the risks, and the culture of
the organization.
4. Continuously improving risk management
The final criterion for effective risk management has to do with the continuous
improvement of the risk management framework and the risk team itself. One
investment fund was able to do this with the help of regular assessment of the
quality and timeless of their risk analysis, annual risk management culture
assessment as well as periodic review of risk management team competencies.
POST ASSESTSMENT:
1. In your own understanding, how important risk management is to a company?
2. Choose a business entity in our community, and create a Risk Management Process.
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