The risk management process is one of the main factors in the success of any business organization. In the fast-changing business environment, businesses continuously have to face risks. Business risks can be internal or external. Internal risks can be managed by the businesses as they are generated by internal factors of the organization. External risks are related to the external business environment. Hence, the business does not have direct control over external factors. However, if they are able to manage the risks properly, they can be minimized, eliminated, or converted into opportunities for the business with the intention of achieving a competitive advantage.
The risk management process is about identifying the risks and take necessary actions to minimize or eliminate the impact that can be created in the business activities due to the risk. It includes identifying, assessing, evaluating, tracking, and mitigating or eliminating the risk.
The risk management process has five main steps that any organization should follow in order to minimize the impact that can create from the risk.
Step 01: Identifying the risk
The first step of the risk management process is identifying the risks that the business is exposed to when operating in its environment. There are many types of risks that can be identified when a business is operating.
– Safety risks
– Environmental risks
– Legal risks
– Market risks
– Regulatory risks
– Quality risks
– Competitor risks
are few types of risks that any business would face. The risk team has a responsibility to identify many risks as much as possible as not identifying a possible risk can create unfavorable results for the business activities. In an organization that operates manually, the risks involved should be noted down manually. If the business organization uses technology in its business processes, the risk management team can insert all the risk details into the system and look for solutions to minimize the risks. It allows all the stakeholders of the business with the system access to reach the risk data that are made available for them by the risk management team.
Step 02: Analyze the risk
Once the risks involved with the business activities are identified, the risk team along with the management should be able to analyze the risks. This will help the business to identify the nature of the risk and the impact it can create on the business activities. The scope of the risk must be defined and the link between risk and different operation processes should be properly analyzed. Analyzing the risk will help the business to clearly define the business functions that may affect the risk.
Step 03: Evaluate the risk/ Rank the risk
Once the involved risks are analyzed, the risks should be ranked and prioritized. The ranking of risk is mostly done based on the severity of the risk and the impact it can create on the business functions. Evaluating the risks allows the organization to have a clear view of the risk exposure of the entire organization and identify the intervention level that is necessary when managing each risk factor.
Step 04: Treat the risk
Every risk associated with the business functions should be minimized or eliminated in every possible way. This should be done by collaborating with the experts in the business function where the risk is associated. The expertise knowledge should be used to take necessary actions in risk mitigation while maintaining business processes continuously.
Step 05: Monitor and review the risk
Once the risk is treated and the solutions to avoid or minimize the risk are provided, the business should monitor the success of risk management and make sure the same risk won’t affect the business activities going forward. The most important aspect of monitoring the risk is that it allows the risk management team to identify any risk changes and provide a better background to take necessary actions.