Risk Management the Six Major Processes Involved

Risk Management

The six major processes involved in risk management are planning risk management, identifying risks, performing qualitative risk analysis, performing quantitative risk analysis, planning risk responses and actually controlling risk. One might argue that the two most important of these processes are the first and the last ones -- the planning of risk management and the controlling of risk once it actually occurs and becomes a threat to a particular enterprise. Nonetheless, planning risk management has a preeminence associated with it for the simple fact that in this initial step, the vast majority of the other steps are considered. During the planning stage, organizations are essentially determining what sorts of risks they are susceptible to and how, how great a risk these things are to the organization, and how they will respond and ultimately mitigate or control the risk. The best example of this step is an organization that has newly formed and is holding a meeting of all relevant stakeholders to assess the risks that it collectively faces. The aforementioned brainstorming process of risks and levels of risks are discussed at such a meeting. Once the organization identifies risks and their nature, they are then tasked with forming a comprehensive plan to help mitigate that risk which will involve each of the five other steps in this process. Stakeholders must determine many vital points of focus during such a meeting, which can last for several days in some instances. Those include determining the overall scope of the risk management program, relevant environmental factors, communications processes and others. Still, the objective is to plan for each of the five other steps.

Identifying risks is the critical process in which an organization actually determines what the sources of risk are and how. Moreover, it also involves stratifying these risks according to type, severity, response, and other factors that are germane to the business objectives of an organization. It is noteworthy to mention that new risks arise daily, and that a company may need to conduct a risk analysis repeatedly to keep current with the level of threats that it encounters. The best example of an organization attempting to implement phase two of this process and identify risk is one that, after having completed the first phase of planning risk management, has moved on to the second phase. Doing so should involve a SWOT analysis, which will not only reveal positive prospects the company faces and its strengths, but also negative prospects and the sort of risk that it can best prepare for. There are other practical ways that an organization can conduct a risk assessment; one of the most eminent of these is an assumption analysis. An assumption analysis seeks to identify any assumptions that members of an organization are making regarding their business and operations processes, and then considers those a risk since they are mere assumptions and not fact. The goal of conducting these assessments is to record each and every risk the company can conceive of, so that it is then better able to prepare for it. Organizations should be able to use the information that they determined in the first of these processes, the planning risk management stage, to serve as a starting point for this second process.

The third step in the process is performing a qualitative risk analysis. This step is distinguished form the fourth one in that the letter attempts to quantify the nature of risks, whereas in step three risks are considered from a qualitative perspective. It hinges upon the second process because it requires organizations to assess all of the risks that were compiled during the second phase. Specifically, they will look to assess these risks and the likelihood of their occurrence, as well the degree of damage they can cause to the organization were a threat to actually occur. In this process of risk management, then, an organization effectively presents a hierarchy of its risks. Furthermore, just as it is necessary to repeatedly issue risk assessments to identify risks, it is also prudent to continually conduct qualitative risk analyses, because risks and their level of prioritization change. The prioritization of risks is partly based on the sense of urgency that accompanies them. In some ways, the point of a qualitative risk analysis is to ascertain the urgency of each credible risk so that the organization can prepare to deal with it accordingly. A practical example of an enterprise that is performing a quantitative risk analysis is one that utilizes a risk impact and probability assessment and matrix. These tools help to categorize risks according to their impact and likelihood of occurring. These tools are also improved by assigning numeric values to levels of probability and impact, which help organizations to most effectively prioritize risks. Such a prioritization is the projected outcome of this particular phase.

In many ways, the fourth phase of a risk assessment plan, performing a quantitative risk analysis, is directly related to the preceding two processes identified in this task. Those two processes involve compiling a registry of risks and issuing a qualitative assessment of them to prioritize risks. Once those risks have been prioritized, the fourth process seeks to assign a qualitative value to that risk if it actually occurred. Quite frequently, such a value is based on time, money, or perhaps both. When an organization seeks to identify a temporal element to base its quantitative analysis on, it involves the amount of time an organization would be affected by that risk and how long it would take to overcome it. Economically, a quantitative analysis is mostly based on how much money an organization would have to spend to counteract the effect of a risk. Obviously, there are certain instances in which these two factors directly coincide. For example, in the event that there were a risk that would shut down the business processes for a company for two weeks, it would have to not only consider the time in which those processes were down but also the amount of money they would not be able to make because of that risk. These factors must be considered in conjunction with the cost of repairing those business processes, which might involve hardware, software, or even training new personnel.

Other than actually controlling a risk, the fifth process of risk management, planning risk responses, is one of the most vital. Although these processes have certainly been ordered in a logical progression, the need to plan a response to risks once they have been prioritized and gauged in terms of how much time and money they might cost an enterprise is an integral one which is the culmination of the preceding four. In order to sufficiently plan a response to a risk, an organization must develop some contingencies regarding a particular risk. For instance, in planning for the event of database failure, an appropriate response would be to have some means of replicating data (perhaps to a Cloud environment) that is autonomous of the data in a physical database located on premises. Such solutions, services, and vendors exist. Although the need to replicate data off premise in the event of failure is just an example, planning risk response involves the need to actually take action. Heretofore, all of the steps have involved analysis and planning, assessing and calculating. During the fifth step organizations need to actually act on those analyses and take preemptive action that can severely mitigate the effect of each of the risks they have identified in their evaluations. Necessarily, they should plan responses according the prioritization of risks which includes the factors of which risk will consume the most time and money.