In the majority of industries, risk management expertise is now essential and in high demand. Any organization must have a risk management strategy. Every business owner, from your neighborhood coffee shop to global corporations, requires a plan to identify and manage potential risks to maintain business sustainability. Risk has grown to be so significant to business that it has its own discipline of study. Risk management specialists are well paid and in high demand. For students interested in learning more about risk management, the Project Management Institute offers a risk management certification. Risk management is essential for most industries and the specific risk management approach can often be determined by each industry, but there are a number of basic approaches and tools in risk management that apply in any industry. The basic approaches that apply to all industries are:
1. Risk Identification
2. Risk Analysis and Assessment
3. Risk Control
4. Monitoring Risks
Risk Identification Techniques and Tools
Most risk management programs and risk managers begin by identifying the risks that threaten a particular organization or situation. Prevention is better than cure and this risk management technique is aimed at identifying risks before they materialize, with a view to minimizing the risk itself or seeking ways and means of reducing the potential outcome of the risks, should the identified risk scenarios materialize.
There are a number of common tools and techniques that are used by risk managers to help them identify possible risks to the organization or product. There tools and techniques are often used in combination to ensure that all potential risks are identified within the organization. Risk managers also try to ensure an environment where employees feel open about discussing potential risks without reprisal or consequences. Tools commonly used by risk managers to identify risks within an organization include creating and controlling:
- Brainstorming sessions
- Collection of event inventories and loss event data
- Interviews with staff
- Facilitated workshops
- SWOT analysis
- Risk questionnaires and surveys
- Scenario analysis
Risks identified by a risk manager generally fall into four categories namely financial risks, strategic risks, operational risks and hazard risks.
Risk Analysis and Assessment
Risk analysis and assessment involves evaluating the various identified risks or risk events, to determine the levels of risk posed by that particular identified component or event, and to quantify the risk in order to assess the level of prevention or control that is required by that risk.
Analysis includes who might be harmed and how that may occur. Groups of people are generally identified when dealing with who might be harmed, rather than listing people by name. Groups commonly include customers, employees or the general public. It is important to identify how they may be harmed to assess the potential consequences of each identified risk event. The type of harm can contribute to the level of management and control required by that particular risk event.
“What if” type scenarios are often used in risk assessment and analysis to provide valuable insight into the various risks that have been identified. Assessment can also include quantifying risks in terms of the financial costs to provide insight into which risks pose more of a threat to the organization or to the groups identified in the risk assessment. There are also a number of quantitative software applications that a risk manager can use to help determine the potential costs of the identified risks.
It is also important to consider the implications of control within the risk assessment process. The ease with which the risk can be avoided, the costs involved in risk avoidance and the costs associated with risk events, need to be considered and balanced to ensure the best possible profile for each type of risk is developed.
Risk Control
Once the identification and assessment processes are complete, it is time to create the structures and processes to control or avoid risk. The processes and structures will be determined by the type of risk identified and the type of analysis associated with the risk. Risk control includes identifying procedures for risk avoidance, loss control, risk transfer strategies and potential risk retention.
Risk avoidance will include setting up procedures and controls that allow the organization to avoid the risk completely. Avoidance strategies include dropping hazardous products or removing potentially hazardous situations from the organization completely. Risk avoidance can be one of the most successful strategies for risk management but not all organization risks can be avoided. For ones that cannot be avoided, the risk manager needs to identify loss control measures and risk transfer strategies. A good risk manager should also consider risk retention and the consequences of risk retention as well.
Risk Management as a Lucrative Career Option
Risk management forms part of most industries these days. The construction industry relies on risk managers to ensure construction projects are built safely and are built with safety in mind.
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