When planning for budget, resource, project infrastructure and many more aspects in an organization, it was a significant factor of consideration to also plan for Risk Management. Here will always ensure that there is no decline in the growth rate of the company by any chance. It is neglected considering that risk management is a mere support function. But it is the time to be e well educated enough to know that risk management is the base and fundamental process for success. Without planning for risk management, it is challenging to taste success. Any plan or Project initiation should always have a risk management process to start. Here the safest way to achieve the highest possible level without any decline in the growth rate. Because without knowing the factor affecting the risk, it is very much possible to face severe loss and it will hinder the growth drastically.
Importance and significance of Risk Management:
Risk management is nothing but a proactive measure to anticipate any risk associated with the business and also to develop a mitigation plan for the same. Risk management is a proactive measure. It is very much necessary that waste management initiated as a start for any process. Break considering the risk associated with any business process. It is beneficial to stop the threats.
According to ISO, Risks into three categories:
Hazard risks: This is a type of uncertainty in which the consequences are always negative. It needs to be adequately addressed and mitigated to the plan, if not, which will lead to a severe impact. Reducing the risk is very easy by identifying the particular hazard and applying the controls as required. Most of the time, following a disciplined structure itself, will be reduced or help in eliminating the hazard risk. These hazards might be a physical risk like hazardous chemical leakage, fire accident, fall from height and many more. This hazard risks can be eliminated or controlled by adequately applying the required control. A straightforward example of applying power is by only using the personal protective equipment which will safeguard the person working in the premise.
Control risks: We have already discussed in this article that any project started or initiated by an organization should be a risk management procedure. If at all, a project is associated with the risk management procedure, it is nothing but a control risk. Most of the time, these control risks are very much uncertain. Because after applying the control over the threat, the outcome of the same is unpredictable. But it is always suggestible and necessary to implement proper authority for the risk identified.
Opportunity risks: These types of threats are beneficial for the growth of the organization if appropriately addressed. The opportunity risk is nothing but a chance taken by the management and authority to witness a positive outcome at the end. It may lead to positive on even negative outcomes sometimes. It all depends on analyzing the risk at the best possible level. It is always necessary for an organization to consider this kind of threat to explore the opportunities and make the best out of it. But an expert or consultant with a piece of broader knowledge in identifying, analyzing & addressing the risk for opportunity would be beneficial. Opportunity risks cannot be avoided awarded because avoiding the same would cause even more adverse effects. Thus, it should be clearly understood that exploring the opportunity risk will always lead to a success factor.
Steps in Risk management:
- Establish a framework; the first step of Risk management is nothing but waste identification. But to identify risks, there is a need to define and establish a complete framework for the activities performed by the company. Here involves study and research of the market and also understanding the needs and expectations of interested parties of an organization. Creating a context like this will help in identifying and addressing the risk, and this is the effective way to do it.
- Risk identification: It is one of the most crucial steps in the risk management process. Risk identification is the fundamental aspect of risk management. Because in disc left and identified will lead to the use of a loss to the organization. It requires domain knowledge, experience, legal obligations, an environment of the working premise, financial structure of the management, requirements, and needs of the interested parties, learning about business activities and many more. Thus the task of risk identification should be performed only by an expert. After completing the risk identification, it should be categorized into its types to define the mitigation plan. Different methods of risk identification are described according to the categorization of the risks.
- Risk assessment: Risk assessment is carried out to find out the potential level and also the probability of occurrence of the particular risk. It is a quite difficult task to perform the risk assessment is because; finding out the potential level of risk and also the probability of a current depends upon the number of factors and parameters. But sometimes, it is difficult to define the measurement metrics and also the settings for a particular risk. But even the risk assessment process should be adequately carried out to obtain the maximum benefit of risk management.
- Risk treatment: Risk treatment is the task that is going to mitigate and eliminate the loss according to the company because of the particular risk. So, it is a crucial step in the process of risk management. Risk transfer, Risk avoidance, Risk control, Risk-retention are the basic techniques of risk treatment. According to the potential level of a particular risk, the above methods can be applied to treat the risk.
- Plan, implementation, and evaluation: The plan for risk management shall be drafted. The waste management process executed will, according to the program, to achieve the desired result. Finally, the entire process is evaluated, and further decisions are made based upon the performance and the result of the risk management.
These are the steps of the risk management process in brief.
Business is always uncertain, and there is still a need for risk management procedures in any organization to achieve success. The company has a risk management procedure that will produce consistent and efficient results.
Risk Management System in Brief from ISO Prospective:
Risk management is a unique concept in ISO’s management system standards, where it says that organizations have to identify potential threats. Whether internal or external, related to products or services and analyze threats, categorize them according to their probability of occurrence and business impact and prioritize those risks which have to be in an appropriate plan. In simple words, Risks refer to anything which can stop an organization from achieving its desired objectives.
To be more understandable and straightforward, let us understand the term Risk management system by breaking the sentence into two:
Risk: – Any possible situation which can cause exposure to danger. Risk is a potential factor for uncontrolled loss of something which has a value
Management System: – Management system is a set of policies, business processes, and procedures intended to achieve business objectives
From the above, we understand that a Risk management system means as an organization, one should use the management system approach to deeply identify all the potential threats/hazards posing against their business and manage it systematically.
Salient Features and Benefits of Risk Management System:
- Risk Management System is a unique concept which has used in Six Sigma and Failure Mode and Effect Analysis
- Brings out a systematic approach to address the potential threats and hazards related to the organizations
- Helps to determine the current risk exposure and analyze previous examples to treat the present risks
- Helps the stakeholders to develop consistent plans for mitigation of possible threats
- Supports to convert the identified risks into metrics and organizations can prioritize, create awareness and define accountability and action plans.
- Helps to determine monitoring procedures and severity
- If the organization implements the Risk Management System appropriately, then the preventive action scheme becomes a routine.
- A proper Risk management procedure helps an organization to determine residual risks.
Risk-based thinking is a management system approach that helps an organization to become proactive instead of being reactive in undesired situations. This management system tools also helps the organizations to reduce unwanted consequences and take the direction of continual improvement.
- Risk-based thinking is a common practice we all often do directly or indirectly
- The concept was described in more details in ISO 9001 and was mandatory to follow in organizations
- Risk-based thinking helps to identify opportunities, which means if an organization defines its potential threats and treats them with appropriate control measures, then a break is waiting for them to explore the benefits.
- This methodology helps the organizations to achieve customer confidence and enhance their satisfaction
- It has that the organizations which have adapted Risk-based thinking methodology have seen a drastic improvement and cost reductions.
- This management system tool has encouraged organizations to develop pro-activeness among their employees
- Risk-based thinking, once implemented, becomes an integral part of the organization.
How can organizations adapt to Risk-based thinking?
- The first step in the process of implementing Risk-based thinking in an organization is to identify risks and opportunities associated with the context of the organization.
- A risk register has to prepare where the organization has to record all the identified risks in detail.
- ISO 31000 standard guidelines can be referred for useful inputs to implement a Risk-based thinking approach.
- No ISO management system standard will specifically ask an organization to carry out a full-fledged risk assessment or to prepare a risk register but demands the practice of having this methodology as part of management.
- After identifying the risks and associated threats, the organization has to analyze and set priorities on the levels of acceptance and non-acceptance
- Once after the level of priorities are set, the organizations have to develop plans to address the identified risks, here addressing means the organizations have to formulate strategies to avoid or eliminate the threats with respective mitigation plans.
- Then the organization has to implement the control measures or mitigation plans accordingly and assign responsibilities and accountability
- The organizations have to check the efficiency and effectiveness of the implemented control measures, do the necessary changes if any for getting better results.
- Organizations should follow continual improvement strategies by learning from their experiences.
How to prepare a risk register:
As there is no standard format provided by any ISO management system standard for making a risk register, various organizations and industry experts use their developed forms. The risk register can be in a simple spreadsheet.
The contents widely used in a risk register are as follows:
Date: The risk register once prepared will become a live document in the organization’s processes. Hence it is required to input dates, the years to mention are the initial period when the risk register prepared, revision date and amendment dates.
A narration of the Risk: This is just a brief description of the nature of Risk
Type of Risk: Here, the organization has to classify the Risk-based on the project, department, and process, location, internal or external and on statutory or legal related issues.
Frequency of occurrence: Here, the organization has to recall the trend as per their previous experience and state how frequently the Risk may occur according to the context. The likelihood should be categorized high, medium and low.
Impact: Here, the organization has to mention the areas which will get affected if the Risk occurs. Here describes the severity of the effects; this can be in a metric form where the organization can multiply the likelihood/frequency of occurrence and determine the risk score.
Mitigation Plan: Here the control measure has to be mentioned, the mitigation plan is nothing but a solution to control the Risk, an appropriate precautionary measures which have to be designed to tackle the Risk and its associated threats.
Responsibility: He the organization when planning the mitigations or control measures, has to assign the responsibility and accountability to the department/process owners.
Residual Risk: some risks still exist even after applying appropriate control measures, but the degree of risks can reduce. The organization has to be selective when deciding on residual risks with a proper approach to mitigate the same.
The golden principle of Risk Management System is “The organization has to either eliminate the risks or reduce the risk or transfer the risk”.
For More Information: ISO Certification