Risk Management Process: 5 Crucial Steps [with Examples]

Risk management plan template     

Prioritize the Risk

The team also sets the priority. They need to ask themselves to understand how risk can impact your system. Consider the risk register, go through it in detail and understand which risk has more probability of occurring and what potential damage they can do to understand the risk control process better. The primary attention must be given to those risks that are more probable to occur and has high severity. So, you need to monitor the entire system and respond to crucial risks at the topmost.

Below is the severity of risks in Asana. 

You can even use color codes to depict the severity so that anyone within the team can start working accordingly. 

3. Assign     

Well, this step can be optional if you want. But make sure to make it a practice to assign for better teamwork. Make sure that you assign a specific person for different categories of risk. So, whenever a risk occurs, that particular person will be notified and can assign the task to any of their team members to work on. The dedicated person will monitor and create documentation that includes all the processes and steps taken to solve the risk. 

You can see in the below image that each risk has an associated assignee and priority. 

4. Monitor the risks    

Make sure you are keeping a tap on your entire process and documenting each step for better identification and analysis of the risk. Make sure to send regular updates to the team and stakeholders, so everyone will know what is happening within the project. Please ensure the risk managers monitor their risk events for any red flags, so you will be ready to work instantly. Also, keep an eye on the risk register to check if there is any update. 

To monitor the risk, you must have consistent and frequent communications.  

5. Respond     

Always remember that risk management is about preventing risks. Suppose any of your assumed risks occur; you must be ready with a quick response. This is where you can take the help of your risk register and risk management plan. 

Different companies might have different ways of eliminating the same risk, so make sure that you keep monitoring different companies' forums and online sites where you can find the easiest way to respond even faster. Risk management in project management is a practiced methodology. This is the primary task for managers. But if a manager has a Project Management Professional (PMP) Certification, they know the better ways to deal with risks. 

Let us now jump to the risk management process with a few examples.

Examples of Risk Management Process  

Several examples are there that explain where you can implement risk management. Some very common risk management process example is mentioned below. 

1. Risk avoidance 

Suppose an investor has invested in a company and is trying to minimize the risk associated with that company. If the company is facing a huge loss and they are consistently selling its stocks. You can avoid investing in that company. It is called abiding risks. 

2. Customer's credit risk management 

A retail company could have risks due to external factors. One of those factors is customer credit which can degrade the company's reputation. If a customer's credit score is not good, they can stop that customer's extension on invoices to reduce the risk. 

3. Company-specific procedures. 

Considering a manufacturing company that has decided to create a new product. Before that, they conduct a risk analysis to understand if they can handle the risk associated with that product. In that way, the company can take preventive and proactive measures accordingly. 

4. Compliance risks 

For any company, following the imposed regulation is necessary. Local authorities or the Govt can impose those regulations. Companies should take care of those regulations and place monitors to ensure the regulations are being followed. To implement this, you need a proper risk management system. 

5. Safety risks 

Every operation within the company needs to be analyzed to check for the scope of risks. There should be frequent audit needs to be carried out to check for any human error within the process. If you have a proper risk management system, you can handle all the processes quickly and with proper reporting. 

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Why is Risk Management Process Important?

Every business does its best to keep its business function, but risks are uncertain and can impact anyway. So, businesses have to prepare themselves with proper methods to implement. By learning from mistakes, businesses are improving their methods to minimize risks. They are also getting aware and adapting themselves accordingly. 

Thus, understanding the importance of risk management process has become a necessity for every business to run smoothly. 

• With risk management practices, you can create policies and procedures per your business requirement to avoid potential risks. 
• For every business, it is necessary that they understand the nature of the risks and to what extent they can go to impact your business. Thus, with risk management, you can control the damage at all levels within the business. 
• Risk management helps businesses make confident decisions as they know the scope of risks within their business. 
• You can prevent your brand reputation in the market with proper risk management strategies. 

Thus, ensure that you take time and make efforts to create a full-proof risk management strategy for your business. Every business must explain the risk management process and what the risk management process includes to their team member. 

Need for Risk Management Process in Project Management

A risk management system is a must for every business with a small scope for risk. It helps the company to streamline the process to avoid potential risks. This way, the entire company runs on a system, and a single deviation from that can be handled easily. 

Not only this, but a risk management system can also help any company in the following ways reflecting the importance of project risk management. 

• Reduce additional costs- taking proactive actions to reduce risks can save you a lot of money. For example, if you install security software on your system, that will cost you less as compared to removing the virus afterward. 
• Saves you time- a risk management system will save you time dealing with unexpected issues. If you already have preventive measures and have worked proactively, you can take less time to deal with risks. 
• Protects from security issues- with risk management, you can safeguard your client's or crucial personal data. If implemented, prepare risk management procedures to secure your data, such as encryption, two-factor authentication, and others. 
• A risk management system helps the company adhere to regulations imposed by different organizations. Companies do not have to check the regulations implementations manually, as the risk management system will manage everything. 
• Risk management is not a single-person task; everyone within a company has to be involved. Thus, create a robust environment where everyone collaborates on a single topic with the single motivation of eliminating risks. 

What Are the Benefits of a Risk Management Process?

Risk can occur anywhere and anytime without giving an intimation. With a reliable and detailed risk management plan and strategies, you can easily control risks from mitigating to other fields. With a risk management system, companies can take better and more confident decisions that will help them to scale. 

Below are the benefits a business can leverage using a risk management system. 

1. Effortless risk identification and response. 

Identification is crucial as it can save your business from degrading. A risk management system helps quickly identify the risk at an early stage. Once you catch the risk, you can work on it and eliminate it before it spreads and damages the system. 

2. Optimize the risk strategies. 

The right risk management system can help managers and others curate effective risk management strategies. It helps everyone to work together to stop the risk as soon as possible. 

3. Optimize risk reporting and communication. 

You can improve the risk reporting method with a systemized risk management system. You will get detailed information about the risk, where it can occur, and how it can impact the system. It also enhances communication as it sends out a notification to the appropriate team, instantly marking the priority of the risk. The team can collaborate to eliminate risk. 

4. Improves the company's reputation. 

Using a risk management system helps businesses make confident decisions that also impact the customers connected to them. It increases customer trust, resulting in a good reputation in the market. For example, if a company is known for its secure payment system, its customers will feel safe adding their details to their websites or apps. 

There are eternal benefits to including a risk management system in your business.

The Basics of The Risk Management Process 

There are some crucial basic things that are common to consider while using risk management systems.  

• Make sure that you implement risk accountability for each team member. It will help in incorporating risk-based thinking. This way, everyone will keep the tap on the process and find the risk areas. 
• Make sure the top management is constantly looped in on such critical issues for better stakeholder engagement. Also, it is always better to take experienced advice in some cases. 
• Make sure that you conduct regular or frequent risk assessments to keep the risk profile updated. This will help the top management to make confident decisions without impacting the company’s profile. 
• Always remember to prioritize the risks so that attention will be given to those risks that are highly accountable for damaging the system. 

Conclusion

Every project is prone to risks. No project is free from risks. Thus, every business in the market must have a risk management system that caters to all types of risks within the business. An early stage of planning can help a business to stop the risk from mitigating and impact the entire business and its reputation in the market. So, managing such risks needs high-end skills. If you are a beginner, you must go for KnowledgeHut Project Management Certification for beginners to better understand how to deal with such critical risks.