What comes to our mind when we hear this word? We get scared, start getting second thoughts about the thing we are going to do and try to eliminate that risk from that thing.
But just think of the things where risk is something that can’t be eliminated and something which has to stay whatever be the situation. What should one do in such situations? One can’t just eliminate risk in these situations.
One needs to know how to proceed with the work after analyzing and nullifying the effect of risk. One needs to know the forecasting of risks. Here, the situations being talked about are mostly related to business, where “Risk Management” is one of the most necessary things.
What is Risk Management?
Risk management is the process of developing and implementing choices that reduce the negative impact of risk on a company. Risk's negative consequences might be objective and quantitative, such as insurance premiums and claims expenses, or subjective and impossible to measure, such as reputational harm or reduced productivity.
A firm will protect itself against uncertainty, minimize expenses, and raise the possibility of company continuity and success by concentrating attention on risk and dedicating the required resources to control and mitigate risk.
(Related blog: Types of Financial Risks)
There is a risk when there is the possibility of making a profit or losing money. Risks are typically referred to as exposures to loss, or simply exposures, in terms of losses. A fire is one example of exposure. Liability risks include defective products and slander. A damaged structure or a tainted reputation might result in a loss of business, which is also an exposure.
The extent of risk can be found out by just multiplying probability with severity, i.e.
Risk= probability * severity.
So, what do we mean by effective risk management?
Effective risk management is aiming to influence future events as much as possible by acting proactively rather than reactively. As a result, good risk management has the ability to lower both the likelihood of a risk occurring and the impact of that risk.
Now, to understand risk management let us try to look at the processes involved in it.
5-steps Process Of Risk Management
All the risk management processes involve the same five steps, just different wordings are used to describe it. Together these five risk management processes combine to make one effective risk management process.
Step 1: Determine the danger: You and your team identify, define, and define risks that might have an impact on your project's result. You may use a variety of methods to identify project risks. This is where you start putting together your Project Risk Register.
Step 2: Assess the Risk: Once the risks have been identified, the likelihood and consequences of each risk must be determined. Here you develop an understanding of the risk you are going through and its potential to affect the goals and objectives of a company.
Step 3: Rank the Risk: The risk magnitude, which is the mix of likelihood and consequence, is used to evaluate or rate the risk. You make decisions about 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: Address the Risk: Risk Response Planning is another name for this. This stage involves assessing your highest-ranking hazards and devising a strategy for treating or modifying them to attain acceptable risk levels.
How do you reduce the likelihood of bad risks while increasing the chances of positive outcomes? This is where you develop risk reduction methods, preventative programs, and contingency plans.
Step 5: Monitor and Review the risk: Here you take your Project Risk Register and use it to monitor, track and review the risks involved in it.
Let us now try to know why risk management is important.
Importance Of Risk management
Risk management is an essential procedure because it provides a company with the tools it needs to properly identify and manage possible hazards. It is simple to reduce risk once it has been identified. Furthermore, risk management provides a firm with a foundation on which to make informed decisions.
Risk assessment and management are the greatest ways for a company to plan for events that may obstruct progress and growth. When a company assesses its plan for dealing with possible dangers and then implements structures to deal with them, it increases its chances of becoming successful.
Progressive risk management guarantees that high-priority hazards are addressed as quickly as feasible. Furthermore, management will have the essential knowledge to make educated decisions and guarantee that the company remains profitable.
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7 Examples of Risk Management
The easiest approach to describe risk avoidance is to use the example of an investor attempting to control his or her risk in the firm in which they have invested. If the firm in which they have invested is losing money and they decide to sell their investment (stock) in the firm, they can remove it from their list of investments; this is known as risk avoidance.
(Also check: Benefits of Stock Market )
Customer Credit Risk Management
There is always a risk in the retail business due to the external forces involved. Customer credit is one such external aspect that may have a significant influence on the company's earnings.
Companies can control their risk if they do a client credit risk analysis and discover that things aren't going so well. This can be accomplished by halting invoice extensions for clients deemed high risk by the organization in order to eliminate additional risk.
Take, for example, the manufacturing industry. A new product is being developed by one company. They must first do a thorough risk analysis to determine the degree of risk that the firm may encounter before they can begin manufacturing.
Then they may evaluate if the benefits of producing the new product exceed the hazards associated with it.
(Referred blog: Big data in manufacturing industry)
Elimination of Contract Risk
When investors make investments in other countries, the firm may face foreign risks. Foreign currency rates may decline, resulting in losses, which is seen as a significant risk to the investor. To mitigate this risk, the investor can establish contracts in US dollars and be protected.
Maintaining regulatory compliance is a critical component of every organization, but it can also be a significant risk. Companies must ensure that they have measures in place to regularly check their businesses' compliance.
They must keep track of all existing processes, procedures, and technology in order to remain compliant. A risk management system can help you achieve this successfully.
There is a risk that the company's operations may be jeopardized. This, too, must be examined and addressed on a regular basis. All maintenance processes should be audited on a regular basis to look for hidden human error. Companies that use a risk management system may also handle this extremely efficiently.
Information Security Risk
This is part of the cybersecurity process. Data is one of a company's most significant assets, and it must be safeguarded. Data theft may occur in a variety of ways, and it is a significant risk for any firm.
Controls for all incoming communications, such as emails, are one of several strategies to mitigate this risk. They must be scanned to ensure that no questionable ones arrive at the firm, and if they do, they must be handled accordingly.
There are several other examples of Risk Management and we will come across them as we will move from one industry to another. As a result, there is an increasing number of options for managing these risks.
Accepting the risk, supply chain risks, using multiple models to evaluate the severity of their risks, procurement risks, and other external risks such as the political climate, currency volatility, various environmental issues, and so on are just a few examples.
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Because there are hundreds of various sorts of hazards that firms must be aware of, risk management is a complicated process. Many training and certification programs will provide expertise to corporate teams, allowing them to successfully minimize risks, enhance all of their processes, and produce more income.
Now as we are talking about different industries, we must know what happens when these risk management techniques are combined with technologies and are converted into software.
As we went through some software that uses the applications of Risk management. We found out the top 5 among them. Let us have a look at the best risk management software available around.
TOP 5 Risk Management Software
Inflectra's primary Enterprise Program Management product is SpiraPlan. This all-in-one solution, now in its sixth iteration, combines test management, bug tracking, and requirements traceability with a comprehensive set of tools for program and portfolio management, release planning, resource management, and risk management.
SpiraPlan has an executive dashboard that includes essential indicators, real-time graphics, and customized reports and templates.
The key features of spiraplan are-
Risks have particular features for assessing and classifying how significant they are, such as Probability, Impact, and Exposure, which are used to analyze and categorize how significant they are.
Home page of Spiraplan, image: source
The key features of AI tracker are:
A1 Tracker solutions give a web-based UI that is capable of recording and managing project hazards.
A1 Tracker creates user-friendly products and has an excellent support desk team.
Customer service is excellent, and it is one of the key reasons for the company's success.
The software can only be utilized to its full potential by professional users, and learning this program is not simple. Customers still choose this option since once learned, there is no going back.
Because it is web-based, risk management is simple and near real-time.
Homepage of A1 tracker,image:source
Risk Management Studio
When it comes to risk management, this is one of the most diverse and often utilized applications. Gap Analysis, Risk Assessment with Treatment, and Business Continuity Manager are all included in this bundle. This is ISO 27001 certified, and as a result, the threat library is enormous.
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The key features of it are:
The installation is simple, and the yearly price includes free upgrades and customer assistance.
Learning RM Studio is simple, and you can start using it like an expert right away.
Many of us still work with Excel sheets on a regular basis. This offers import and export support when transferring from Excel to RM studio.
RM Studio also has reporting capabilities.
Homepage of Risk management studio,image source
Isometrix is a cloud-based tool for large and mid-sized businesses, Food/Retail, Metallurgy, Civil/Construction, Mining, and other sectors benefit from Isometrix.
The key features of it are:
Food safety, occupational health, compliance management, enterprise risk, environmental sustainability, and other solutions are included in the bundle.
According to statistics, Isometrix is one of the top 20 risk management programs on the market today.
Pricing information for Isometrix is not available online and is only offered upon request by the team.
Homepage of Isometrix, image source
Sword Active Risk Manager
Sword Active Desk's Active Risk Manager (ARM) is a web-based solution. Risks may be recorded with the aid of the Active Risk Manager. Additionally, it aids in the assessment and mitigation of hazards.
The key features of Sword Active Risk Manager are:
The auto alert system, which aids in the dissemination of risk-related information to owners and stakeholders.
A dashboard is a single screen that displays a fast snapshot of numerous facts.
Risk and changes are displayed in a single window, eliminating the need for apps like Excel.
Support for the risk items through qualitative and quantitative evaluation.
Homepage of Sword Active Risk Manager, image source
Risk management in itself is an important feature for any kind of business. Keeping a track of the risks involved is a necessary thing to do. As we all know that businesses encounter a number of risks and some of them are even capable of making the business collapse.
(Similar blog: Supply Chain Management)
That is why analyzing the risks and knowing the basic principles of risk management is a really important thing to do as a step towards securing your business.