Companies face internal or external factors, which makes it uncertain, whether the company meets its objectives, these uncertain events or conditions are called risks. Many have doubts that risk has only negative impact but its not like that, result of risk can have positive impact also, risks are uncertain events. These uncertain events could lead to positive or negative results. Positive risks are known as opportunities. Organisations are attest to reduce negative risks.
Risk management is the process of identifying, assessing and controlling threats to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters
Steps in risk management process
Identify the Risk
You and your team uncover, recognise and describe risk that might affect your project or its outcomes.
Analyze the Risk
Once risks are identified you determine the likelihood and consequence of each risk. You develop an understanding of the nature of the risk and its potential to affect project goals and objectives
Evaluate or Rank the Risk
You evaluate or rank the risk by determining the risk magnitude, which is the combination of likelihood and consequence
Treat the Risk
This is also referred to as Risk Response Planning. During this step you assess your highest ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk levels
Monitor and Review the risk
This is the step where you take your Project Risk Register and use it to monitor, track and review risks.
Types of Risk management
Everyone knows that a successful business needs a comprehensive, well-thought-out business plan. But it’s also a fact of life that things change, and your best-laid plans can sometimes come to look very outdated, very quickly.
Compliance risk is exposure to legal penalties, financial forfeiture and material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices.
Operational risk refers to an unexpected failure in your company’s day-to-day operations. It could be a technical failure, like a server outage, or it could be caused by your people or processes.
Most categories of risk have a financial impact, in terms of extra costs or lost revenue. But the category of financial risk refers specifically to the money flowing in and out of your business, and the possibility of a sudden financial loss.
There are many different kinds of business, but they all have one thing in common, no matter which industry you’re in, your reputation is everything. If your reputation is damaged, you’ll see an immediate loss of revenue, as customers become wary of doing business with you. But there are other effects, too. Your employees may get demoralized and even decide to leave.