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Risk Management Process

The risk management process consists of five essential steps: identifying risks, analyzing risks, evaluating or ranking risks, treating risks, and monitoring and reviewing risks. This framework helps businesses systematically manage various types of risks, ensuring that they can proactively mitigate vulnerabilities and maintain stability. Utilizing digital risk management solutions enhances the efficiency of these steps compared to manual systems.

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2 views5 pages

Risk Management Process

The risk management process consists of five essential steps: identifying risks, analyzing risks, evaluating or ranking risks, treating risks, and monitoring and reviewing risks. This framework helps businesses systematically manage various types of risks, ensuring that they can proactively mitigate vulnerabilities and maintain stability. Utilizing digital risk management solutions enhances the efficiency of these steps compared to manual systems.

Uploaded by

Ali Raza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Risk Management Process

The risk management process is a framework for the actions that need to be taken. There are five
basic steps that are taken to manage risk; these steps are referred to as the risk management
process. It begins with identifying risks, goes on to analyze risks, then the risk is prioritized, a
solution is implemented, and finally, the risk is monitored. In manual systems, each step involves a
lot of documentation and administration.

Here Are The Five Essential Steps of A Risk


Management Process
1. Identify the Risk
2. Analyze the Risk
3. Evaluate or Rank the Risk
4. Treat the Risk
5. Monitor and Review the Risk

Step 1: Identify the Risk


The initial step in the risk management process is to identify the risks that the business is exposed to
in its operating environment.

There are many different types of risks:

 Legal risks
 Environmental risks
 Market risks
 Regulatory risks etc.
It is important to identify as many of these risk factors as possible. In a manual environment, these
risks are noted down manually. If the organization has a risk management solution employed all this
information is inserted directly into the system.

The advantage of this approach is that these risks are now visible to every stakeholder in the
organization with access to the system. Instead of this vital information being locked away in a report
which has to be requested via email, anyone who wants to see which risks have been identified can
access the information in the risk management system.

Learn in depth about risk identification

Step 2: Analyze the Risk


Once a risk has been identified it needs to be analyzed. The scope of the risk must be determined. It
is also important to understand the link between the risk and different factors within the organization.
To determine the severity and seriousness of the risk it is necessary to see how many business
functions the risk affects. There are risks that can bring the whole business to a standstill if
actualized, while there are risks that will only be minor inconveniences in the analysis.

In a manual risk management environment, this analysis must be done manually.When a risk
management solution is implemented one of the most important basic steps is to map risks to
different documents, policies, procedures, and business processes. This means that the system will
already have a mapped risk management framework that will evaluate risks and let you know the
far-reaching effects of each risk.

Risks need to be ranked and prioritized. Most risk management solutions have different categories
of risks, depending on the severity of the risk. Click To Tweet
Step 3: Evaluate the Risk or Risk Assessment
Risks need to be ranked and prioritized. Most risk management solutions have different categories
of risks, depending on the severity of the risk. A risk that may cause some inconvenience is rated
lowly, risks that can result in catastrophic loss are rated the highest. It is important to rank risks
because it allows the organization to gain a holistic view of the risk exposure of the whole
organization. The business may be vulnerable to several low-level risks, but it may not require upper
management intervention. On the other hand, just one of the highest-rated risks is enough to require
immediate intervention.

There are two types of risk assessments: Qualitative Risk Assessment and Quantitative Risk
Assessment.

Qualitative Risk Assessment


Risk assessments are inherently qualitative – while we can derive metrics from the risks, most risks
are not quantifiable. For instance, the risk of climate change that many businesses are now focusing
on cannot be quantified as a whole, only different aspects of it can be quantified. There needs to be
a way to perform qualitative risk assessments while still ensuring objectivity and standardization in
the assessments throughout the enterprise.

Quantitative Risk Assessment


Finance related risks are best assessed through quantitative risk assessments. Such risk
assessments are so common in the financial sector because the sector primarily deals in numbers –
whether that number is the money, the metrics, the interest rates, or any other data point that is
critical for risk assessments in the financial sector. Quantitative risk assessments are easier to
automate than qualitative risk assessments and are generally considered more objective.

Go in more depth Bringing Quantitative Risk Analysis to Enterprise Risk Management

Step 4: Treat the Risk


Every risk needs to be eliminated or contained as much as possible. This is done by connecting with
the experts of the field to which the risk belongs. In a manual environment, this entails contacting
each and every stakeholder and then setting up meetings so everyone can talk and discuss the
issues. The problem is that the discussion is broken into many different email threads, across
different documents and spreadsheets, and many different phone calls. In a risk management
solution, all the relevant stakeholders can be sent notifications from within the system. The
discussion regarding the risk and its possible solution can take place from within the system. Upper
management can also keep a close eye on the solutions being suggested and the progress being
made within the system. Instead of everyone contacting each other to get updates, everyone can get
updates directly from within the risk management solution.

Check our recent post: Improving Risk and Compliance Results With Smarter Data

Step 5: Monitor and Review the Risk


Not all risks can be eliminated – some risks are always present. Market risks and environmental
risks are just two examples of risks that always need to be monitored. Under manual systems
monitoring happens through diligent employees. These professionals must make sure that they keep
a close watch on all risk factors. Under a digital environment, the risk management system monitors
the entire risk framework of the organization. If any factor or risk changes, it is immediately visible to
everyone. Computers are also much better at continuously monitoring risks than people. Monitoring
risks also allows your business to ensure continuity. We can tell you How you can create a risk
management plan to monitor and review the risk.

The Basics of The Risk Management Process Stay the


Same
Even under a digital environment, the basics of the risk management process stay the same. What
changes is how efficiently these steps can be taken, and as it should be clear by now, there is simply
no competition between a manual risk management system and a digital one. There are also
many new risks that businesses are facing for the first time in 2019, and modern problems require
modern solutions.

Risk Management Evaluation


Any business that wants to maximize its risk management efficiency needs to focus on risk
management evaluations. These evaluations and assessments help businesses truly understand
their own capabilities, strengths, and vulnerabilities. More evaluations result in more insights about
where the business needs to improve its risk management framework. It can be difficult to carry out
these evaluations manually, but risk management solutions and technology can simplify the
evaluation and assessment workflow. It is important to do an evaluation before making any major
changes to the risk management framework.

What is Risk Management


Risk management is an important business practice that helps businesses identify, evaluate, track,
and improve the risk mitigation process in the business environment. Risk management is practiced
by the business of all sizes; small businesses do it informally, while enterprises codify it.

Businesses want to ensure stability as they grow. Managing the risks that are affecting the business
is a critical part of this stability. Not knowing about the risks that can affect the business can result in
losses for the organization. Being unaware of a competitive risk can result in loss of market share,
being unaware of financial risk can result in financial losses, being aware of a safety risk can result
in an accident, and so on.

Businesses have dedicated risk management resources; small businesses may have just one risk
manager or a small team while enterprises have a risk management department. People who work
in the risk management domain monitor the organization and its environment. They look at the
business processes being followed within the organization and they look at the external factors
which can affect the organization one way or the other.

A business that can predict a risk will always be at an advantage. A business that can predict a
financial risk will limit its investments and focus on strengthening its finances. A business that can
assess the impact of a safety risk can devise a safe way to work which can be a major competitive
advantage.

If we think of the business world as a racecourse then the risks are the potholes which every
business on the course must avoid if they want to win the race. Risk management is the process of
identifying all the potholes, assessing their depth to understand how damaging they can be, and
then preparing a strategy to avoid damages. A small pothole may simply require the business to
slow down while a major pothole will require the business to avoid it completely.

Knowing the severity of a risk and the probability of risk helps businesses allocate their resources
effectively. If businesses understand the risks that affect them then they will know which risks need
the most attention and resources and which ones the business can disregard. Risk management
allows businesses to act proactively in mitigating vulnerabilities before any major damage is
incurred. There are different types of risk management strategies and solutions for different types of
risks.

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