Risk management is the understanding and response to risk factors that may occur in your business. There are 7 steps in the risk management process. In the process, risk managers will evaluate possible risks by selecting either the alternative regulatory or the non-regulatory response to risk.
The entire risk management process is an integrated method to avoid certain incidents, threats, or risks, and then to develop a comprehensive plan to ensure these risks do not progress or are handled appropriately.
The 7-step risk management process is conducted in a very systematic way to ensure precise results and help in making the best decisions:
Establishing the Context
This includes planning the process and mapping out the scope, the identity, and objectives of stakeholders, how risks will be evaluated, defining a framework for the process, and the agenda for identification and analysis of potential risks.
Identification of risks and threats
The next step in the management process is to identify potential risks that when triggered will cause problems. Failure to identify risks or to have precise analyzation could cause major liabilities for business.
Risk identification can begin by determining the primary source of the problems or the problem itself. It requires knowledge of the business, the industry’s market—including the legal, social, economic, political, and climatic environment—its financial strengths and weaknesses, its vulnerability to unplanned losses, the manufacturing processes, and the management systems used.
Assessment of risks
After risks are identified, they need to be assessed on the basis of their potential severity of loss and on the number of times they have occurred in order to determine the probability of occurrence.
One of the challenges with risk management is that statistical information of the rate of occurrence from past incidents are usually unavailable and are more so guesses. The risk assessment should be able to produce this data so that it becomes easier to understand the primary risks.
Potential Risk Treatments
Once risks are identified and assessed, all techniques to manage these risks fall into one or more of these four categories:
Risk Transfer – the business at fault transfers whole or part of the losses consequential to risk exposure to another party for a cost, usually an insurance company.
Risk Avoidance – avoid the risks or the circumstances which may lead to losses in another way but doing so can also prevent the possibility of earning the profits.
Risk Retention – implies that the losses due to a risk shall be retained or assumed by the party or the organization.
Risk Reduction – risks are reduced through preventative measures or through procedures set in place if an incident does occur.
Create the Plan
Next, you’ll need to decide on the combination of methods to be used for each risk. Each risk management decision should be recorded precisely and approved by the appropriate level of management or project managers.
The risk management plan should propose applicable and effective security controls for managing the risks. An effective risk management plan should propose and schedule security control implementations and list persons responsible for managing the risks.
Implementation of the Risk Management Plan
Now that you have your plan in place, it’s important to follow all the planned methods for mitigating the effect of the risks and keep a record of your progress or where they may be gaps. It’s critical to train management and employees appropriately so they are aware of the plan and know what is needed to execute it.
Review and Evaluation of Plan
Lastly, changes in the plan may be needed based on practices, losses, and experiences. Risk analysis and management plans should be updated regularly to:
evaluate if the selected security controls are still applicable and effective
evaluate the possible risk level changes in the business environment
Initial risk management plans will never be perfect. To create the best risk management plan possible, processes updated consistently.