Definition and process of risk managementAuthor : Mohammad Ali , Founder and CEO of Inventory Software Services
Published : Last Modified :
What is risk management
Risks are the uncertain events that may occur. It's may have positive or negative effects which can affect a certain project result. To ensure project success, It's important to manage the risks properly. The process of managing the risks is called risk management. In the risk management process; identification, evaluation, and prioritization of risks are the common steps to minimize, monitor, and control the probability or impact of unfortunate events for ensuring the maximum realization of opportunities.
From various sources, risks can come like uncertainty in financial markets, legal liabilities, accidents, natural causes and disasters threats and other causes depending project type and location. There are two types of risk effects: 1. negative effects are called risks and 2. positive effects are called opportunities. The risk management definitions and goals vary widely according to whether the method is in the context of project management, security, industrial processes, engineering, actuarial assessments, financial portfolios or public health and safety.
In a good risk management process, there are some important steps in a project plan including the Identification of Risk, Analysis of the Risk, Evaluate or Rank the Risk, Treat the Risk, Monitor and Review the risk.
Risk management process
Identification of Risk: Identifying the project threats is the initial step of risk management. Projects leaders first search the sources from where risk can come. The sources including financial markets, legal liabilities, accidents, natural causes and disasters threats, depending on the project type, size, location or other dependencies. Register the points of risks for the next step.
From previous experiences of same type projects in the same location, it's easy to identify probable risks. It's important to consider the project dependable facts include government rules before identifying the risks. If the project leaders have not any experiences in the same type previous project, they can study before finalizing the project plan.
Analysis of the Risk: After identifying the risks. it's very important to analyze the risks including probable effects of the risks including an understanding of the nature of the risk, potential to affect project goals and objectives like legal liabilities effects of the risks,financial effects on the risks, time and manpower need for the risks and other effects of the risks in your project. Input the analysis into your project register.
Evaluate or Rank the Risk: Evaluate or rank the risk the risks according to their potential effects which organize your risk management in a systematic way and you can take definite steps for the definite type of risks immediately. This makes your risk management easy and effective and pain-free. It's also important to register the ranks in your planning for making the right decisions at the right time.
Treat the Risk: This is the planning step to reduce the risk potentials to achieve acceptable risk levels. Plan your risk mitigation strategies, preventive steps and contingency steps to treat the risk. Make sure the highest treatment of risks with minimum resources like financial amounts, time and manpower, and other dependencies. It maximizes the project's leaders confidence to finished projects properly.
Monitor and Review the Risk: Regularly monitor, track and review risks. The risk is an uncertain behavior of a project that's can come forward suddenly which you don't imagine when planning. Always prepare for the uncertain risk. If facing any risk, take steps confidently to achieve your project goals. Ensure the right solutions for a certain risk and after the finish, the job, go forward for the next step.
The Bottom Line: For any project including business, academic or others, risk management is a vital part of the project planning. It reduces the project risk and ensures the desired success.