Risk management is a systematic approach to identifying and reducing risk (and not as much about risk elimination). It is also the process of applying strategies and actions whilst considering risk within an organisation. Risk management can help minimise risk exposure, avoid risk altogether, or transfer risk from one entity to another. The focus is on opportunities for favourable outcomes & the risk of unfavourable outcomes.

It is risk management’s job to identify risk and risk types, assess risk magnitude & likelihood, report risks, develop risk responses (avoidance, mitigation, acceptance), monitor risk response effectiveness, review risk tolerance levels and risk procedures in place to ensure employees are aware of responsibilities when it comes to managing risk. [1]

Basic Components:

– Identification of potential hazards & vulnerabilities present in the system or organisation that could result in a negative event.    The result of this activity can be documented in a risk register which helps manage identified risks. It could also include the identification identifying relationships between work tasks and their associated risks. Relationships between people involved with the process and possible hazards involving them should also be identified.

– Assessment of risk

based on risk magnitude, risk likelihood & risk exposure. This assessment will help to determine the overall risk level of risk after it has been assessed for risk magnitude and risk likelihood. It can also help assess how well countermeasures are working to reduce risk exposure if they have already been incorporated into the organisation’s risk management procedure.

– Risk Responses:

(avoidance, mitigation and acceptance) Strategies and actions that organisations and individuals take to avoid or limit exposure to risk or failure; or accept the consequences of a failure event, loss or harm that may occur if no action is taken. These responses can be documented in a risk response plan which suggests appropriate strategies with associated risks. If the possible risk is to be mitigated, risk management will need to determine whether the risk can be eliminated, transferred or otherwise reduced.

– Risk Monitoring:

an ongoing activity that determines the effectiveness of risk management strategies and activities.

Risk is inherent in everything we do, risk is not necessarily bad when viewed as the possibility for gain & opportunity. The risk involved in doing something might outweigh the rewards yet taking no risk at all also involves risk because you deprive yourself of opportunities to achieve goals. [2]

This is why risk management processes are implemented in most organisations; they reduce harm or damage caused by unexpected events (most likely risks). Harm/damage can be limited through a proactive risk assessment with clear communication between key stakeholders within an organisation. It also entails risk monitoring activities that are carried out throughout the risk management process to ensure risk is being managed effectively.

There are several risk management strategies an organisation can implement to help effectively manage risk, some of these include:

– Risk avoidance:

removing or preventing risk from happening altogether by choosing not to do something or avoiding certain situations & circumstances.   For example, if the risk of harm during a construction project seems high, perhaps construction could be temporarily halted until active risk mitigation can be introduced into the process.

– Transferring risk:

shifting some or all consequences of risk onto another party through insurance coverage for example. This option acknowledges that although some risks cannot be eliminated altogether after taking some risks there might be ways to limit

risk exposure for example by purchasing insurance to cover the risk exposure.

– Risk mitigation:

taking steps to reduce risk exposure so exposure is limited or reduced based on risk assessment. For example, instead of waiting until the risk has occurred and harm is done (and then fixing it), taking measures beforehand can mitigate any chances of failure (the risk) occurring in the first place if risk cannot be avoided altogether.    Engineers can use their technical knowledge to reduce the risk that may occur during construction projects for example by planning ahead and implementing safety precautions before beginning work with heavy machinery.

– Accepting risk:

this option does not measure, monitor or review risks at all. This option is most likely employed when an organisation determines that the total benefits of risk outweigh the risk exposures, some risk is inevitable.

Risk management is not only limited to organisations; individuals can also use risk management strategies in their day-to-day lives by following certain practices that help mitigate risk exposure. For example, when driving a car if risks are assessed and posed they can be mitigated by slowing down or taking extra precautions like wearing your seatbelt at night for example (depending on the risk). A risk could involve crashing into another vehicle while driving at night without wearing a seatbelt even though most people would consider this unnecessary because it’s unlikely to happen. On the other hand, there might be additional risks associated with driving slowly or stopping to wear your seatbelt so although you’ve mitigated one risk you risk losing time (and possibly worsening the risk exposure – missing your flight or arriving at work late for example). Risk management is often subjective; risk exists in everything we do, risk management is about effectively managing risk.

One of the important aspects of risk management within organisations (in most cases) is to ensure risk is communicated between key stakeholders because this helps identify gaps where risk mitigation might be required. When risks are assessed before implementation it minimises ‘failure’ because any possible actions that could have been taken to prevent the risk from occurring are already in place. There will always be some degree of risk involved but the risk can be reduced or mitigated altogether by communicating risk effectively and efficiently. After all, doing nothing also invokes certain risks and risk is the risk – it can never be eliminated altogether (although risk mitigation and risk avoidance might help to minimise risk exposure).

Risk management strategy should always include risk communication; without communication, it won’t work effectively either for individuals or organisations because everyone involved needs to be aware of the potential risk(s) before taking action. An organisation’s risk management strategy includes certain processes such as:

– Identify risk:

this involves identifying potential risks that may occur during the course of implementing a particular process or project. These risks will then be assessed in terms of their likelihood of occurring and how severe their consequences are if they happen.

– Assess risk:

assessing risk takes into consideration probability, severity & impact which is used to determine risk exposure. This risk assessment helps an organisation to decide if risk mitigation steps should be taken or not based on the risk exposure that could occur if the risk does actually happen. Each risk is then assigned a unique identifier so it can easily be tracked throughout the course of project implementation.

– Communicate risk:

risk communication should always include key stakeholders so they are made aware of potential risks involved with any particular process or project being implemented within an organisation. Risk communication also involves certain processes such as defining which risks are worth being communicated, determining how often information regarding exposed risk needs to be shared & defining who will manage any exposed risks among other things.

– Manage risk:

once the exposed risk has been identified and communicated important decision-making factors need to be considered such as risk severity, risk exposure & risk probability. In some cases, risk mitigation might be required and risk can also be ‘accepted’ if the risk is not deemed severe enough to pose a threat. If an organisation’s risk management strategy is well defined it would include who is responsible for managing unacceptable risk and in what capacity they’re expected to work in order to manage the risk effectively and efficiently.

– Ensure compliance:

when finalising risk documentation ensure that all people within your organisation that will need access to this information have been identified and an organised system for distributing this information has been established so everyone is kept up-to-date with developing risk issues when necessary (although sometimes it might be too late).

Risks should always be communicated to everyone who needs to know about risk exposure because risk management is not risk elimination. Risk mitigation refers to the ability of an organisation’s risk management strategy to reduce risk exposure. For example, if a particular project involves implementing new software on an organisation’s computer network there are certain risks involved with this process – some examples include:

– Someone might hack into the new system being installed and access confidential information stored on the system.

– Some users will be responsible for configuring new software which might have unforeseen consequences if their changes are not documented appropriately leading to potential security issues.

– The new software might prove incompatible with existing hardware or cause unforeseen technical problems that need to be resolved before work can continue.

Risk management should always be taken into consideration when implementing any new process or project within an organisation. An effective risk management strategy will help to reduce risk exposure and eliminate risk if possible by identifying potential risk sources and evaluating how severe a risk is with the probability of the risk occurring. Risk management does not involve risk elimination but involves risk mitigation which can help reduce risk exposure according to an agreed-upon risk assessment.

Conclusion

In conclusion, effective risk management consists of processes such as identifying risk, assessing risk & mitigating risk in most cases through making informed decisions based on information that has been gathered from various sources before taking action or continuing business as usual depending on individual circumstances involved with each particular situation.

Organisations must have a strategic plan for their entire organisation including managers who are responsible for risk management in their particular department or division. Effective risk management can help to reduce risk exposure while risk mitigation might be necessary in some cases. Ensuring compliance with risk documentation is vital so everyone within an organisation is made aware of risk issues when necessary.

An effective risk management strategy will include identifying key stakeholders, communicating risk & ensuring compliance which are all vital parts of the process of risk management.

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