Managing risk has become a vital activity in many businesses. New risks are constantly emerging, from internal unauthorized and unethical actions to breakdowns in routine operational processes.
There are five basic ways to manage risk: avoidance, retention, transfer, loss prevention and reduction. TechTarget articles explain these methods in more detail, as well as their implications and benefits.
Risk Assessment
Risk assessment involves determining the likelihood of dangers occurring, as well as how severe these hazards could be. It's a legal requirement for any employer with five or more employees to carry out a risk assessment and document key conclusions.
Once the list of hazards has been compiled, it's time to evaluate them. This includes assessing how likely each threat is to cause injury and the severity of any damage that might occur. This evaluation is often referred to as "ranking" or "prioritizing" the risks and can be done in a variety of ways.
Choosing the right tool or methodology for measuring risk is important. It's also essential to document the entire process and re-evaluate on a regular basis, especially after any accidents or incidents occur. This will ensure that the current control measures are effective and to reassess whether additional controls should be put in place. It's also important to keep in mind that risk assessments can only be accurate to a certain degree due to scientific uncertainties.
Risk Mitigation
Once risks have been analyzed and ranked, it's time to figure out what steps are needed to mitigate them. This involves assessing the likelihood that a risk will occur and determining how severe the consequences would be. It also involves checking whether existing controls can prevent the risk from occurring.
A company can take one of three approaches to mitigating risks: avoidance, transfer or reduction. Trying to avoid risks is often not possible, but companies can mitigate them by taking measures like installing early warning systems or buying insurance or hedging contracts. This helps companies offset the effect of nonpreventable risks, such as weather or natural disasters.
A business can create a separate plan for risk mitigation, or it can incorporate the strategy into its overall emergency management or business continuity plans. It's important to document all the steps in the plan, and to run drills to ensure that employees know what to do in an emergency.
Risk Monitoring
Once risk has been assessed and mitigation strategies have been put in place, it's important to monitor the risks on a regular basis. This allows you to see how well your plans work over time, if they are effective and whether the risks have changed.
Risks change, both in their level of severity and likelihood of occurrence, because the internal and external environment Risk Management changes over time. This also means that what the organization considers an acceptable level of risk may have changed.
To monitor a risk, you need to collect data and information from both inside and outside the organization. Internal data includes things like project performance, business processes, and policies. External data could come from news aggregators (although this is only useful if the information they gather is relevant to your risk). You can use digital templates for monitoring, such as the safety at heights template from dashpivot, or you can create custom ones.
Risk Response
After identifying and assessing potential risks, it's time to think about the risk response strategy. There are a few options available: avoid, reduce, transfer and accept.
The reduce risk option is any action that can be taken to decrease the probability or impact of a specific threat. This can include implementing security devices on audio visual equipment or hiring employees with appropriate clearances.
The transfer risk option is shifting the burden or ownership of a threat to a third party, such as taking out insurance coverage for certain types of risks. This strategy can also be a good idea when it's possible to do so without impacting project objectives, for example by working from home during COVID-19 to protect employee health and keep production running. Residual risks that remain after a risk avoidance, transfer or mitigation are considered secondary risks and should be documented in the risk register. This is an iterative process and risks should be reassessed on a regular basis to determine whether the risk is still being managed effectively.
