2023: Risk management- its definition, steps, structures and importance.
Risk management is the process of identifying, assessing and controlling threats to an organization’s capital and earnings. These risks stem from a variety of sources including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural disasters.
A successful risk management program helps an organization consider the full range of risks it faces. Risk management also examines the relationship between risks and the cascading impact they could have on an organization’s strategic goals.
Risk Management Steps
Follow these risk management steps to improve your risk management process.
1. Identify the risk
Anticipating possible pitfalls of a project doesn’t have to feel like gloom and doom for your organization. Quite the opposite. Identifying risks is a positive experience that your whole team can take part in and learn from.
Leverage the collective knowledge and experience of your entire team. Ask everyone to identify risks they’ve either experienced before or may have additional insight about. This process fosters communication and encourages cross-functional learning.
2. Analyze the risk
Once your team identifies possible problems, it’s time to dig a little deeper. How likely are these risks to occur? And if they do occur, what will the ramifications be?
During this step, your team will estimate the probability and fallout of each risk to decide where to focus first. Factors such as potential financial loss to the organization, time lost, and severity of impact all play a part in accurately analyzing each risk. By putting each risk under the microscope, you’ll also uncover any common issues across a project and further refine the risk management process for future projects.
3. Prioritize the risk
Now prioritization begins. Rank each risk by factoring in both its likelihood of happening and its potential effect on the project.
This step gives you a holistic view of the project at hand and pinpoints where the team’s focus should lie. Most importantly, it’ll help you identify workable solutions for each risk. This way, the project itself is not interrupted or delayed in significant ways during the treatment stage.
4. Treat the risk
Once the worst risks come to light, dispatch your treatment plan. While you can’t anticipate every risk, the previous steps of your risk management process should have you set up for success. Starting with the highest priority risk first, task your team with either solving or at least mitigating the risk so that it’s no longer a threat to the project.
Effectively treating and mitigating the risk also means using your team’s resources efficiently without derailing the project in the meantime. As time goes on and you build a larger database of past projects and their risk logs, you can anticipate possible risks for a more proactive rather than reactive approach for more effective treatment.
5. Monitor the risk
Clear communication among your team and stakeholders is essential when it comes to ongoing monitoring of potential threats. And while it may feel like you’re herding cats sometimes, with your risk management process and its corresponding project risk register in place, keeping tabs on those moving targets becomes anything but risky business.
Risk Management Structures
Risk management structures are tailored to do more than just point out existing risks. A good risk management structure should also calculate the uncertainties and predict their influence on a business. Consequently, the result is a choice between accepting risks or rejecting them. Acceptance or rejection of risks is dependent on the tolerance levels that a business has already defined for itself.
If a business sets up risk management as a disciplined and continuous process for the purpose of identifying and resolving risks, then the risk management structures can be used to support other risk mitigation systems. They include planning, organization, cost control, and budgeting. In such a case, the business will not usually experience many surprises, because the focus is on proactive risk management.
Response to Risks
Response to risks usually takes one of the following forms:
- Avoidance: A business strives to eliminate a particular risk by getting rid of its cause.
- Mitigation: Decreasing the projected financial value associated with a risk by lowering the possibility of the occurrence of the risk.
- Acceptance: In some cases, a business may be forced to accept a risk. This option is possible if a business entity develops contingencies to mitigate the impact of the risk, should it occur.
When creating contingencies, a business needs to engage in a problem-solving approach. The result is a well-detailed plan that can be executed as soon as the need arises. Such a plan will enable a business organization to handle barriers or blockage to its success because it can deal with risks as soon as they arise.
Importance of Risk Management
Risk management is an important process because it empowers a business with the necessary tools so that it can adequately identify and deal with potential risks. Once a risk has been identified, it is then easy to mitigate it. In addition, risk management provides a business with a basis upon which it can undertake sound decision-making.
For a business, assessment and management of risks is the best way to prepare for eventualities that may come in the way of progress and growth. When a business evaluates its plan for handling potential threats and then develops structures to address them, it improves its odds of becoming a successful entity.
In addition, progressive risk management ensures risks of a high priority are dealt with as aggressively as possible. Moreover, the management will have the necessary information that they can use to make informed decisions and ensure that the business remains profitable.
Where can i get the best risk management training in Nigeria?
After reading the benefits and importance of risk management training, the question is where can you get risk management training in Nigeria? The answer is simple, JobSkills Training Institute. They are professionally trained to teach risk management training, and are have been awarded with recognized certificates.
JobSkills training institute has branches for risk management training in Lagos State, Delta state, Rivers state, Edo state, Ogun state and FCT Abuja.
Contact Our Customer Care
Call or WhatsApp +2348164085555, +2349076777762.
All you need to do is REGISTER NOW and be rest assured of getting the best training in Nigeria.