Risk management is about analyzing the risks that could cause damage or loss of value to your organization and prevent you from reaching your financial goals. Risk management is often discussed in relation to the organization's core business processes, but it is also an important element in relation to IT services and systems, as well as employees, suppliers and partners.
Successful risk management can help your organization consider all the risks you face and how best to address them.
What is risk management?
At its simplest, risk management is about identifying risks, assessing their extent and deciding how the organization should respond to them. Every organization has to handle risks. Some are taken on consciously, while others are a natural part of the environment in which the organization operates. Founding a company, launching products, hiring employees, collecting data, building systems are all elements that are essential to a successful business, but are also sources of risk.
Risk management provides the organization with tools to balance risk taking and risk mitigation, and the goal is to ensure that the organization and its employees act to prevent or reduce the risk of events that could reduce the organization's revenue, bankrupt it, or damage its reputation.
4 elements of risk management
Effective risk management should be systematic, structured and aligned across the organization. There are several steps in a risk management process, but at a minimum it should include:
1) Identification of risks
Risk identification is the process of documenting potential risks and then categorizing the actual risks the organization faces. A systematic approach to identifying risks is essential as it reduces the likelihood of potential risks being overlooked.
At the same time, it's essential to not only look at current risks, but also to think ahead. As technology evolves, so does the organization - and this can lead to new risks.
2) Risk assessment
Once risks are identified, the next step is to assess the likelihood of them occurring and their potential impact on the organization.
For example, risks can be categorized into severe, moderate and less severe to give the organization a thorough overview of the severity of the threats as well as the likelihood of occurrence.
3) Mitigation of risks
Once risks are defined and analyzed, the next question is how the organization should respond to them. Should a roadmap be created for what managers and employees should do if a given risk occurs, or should staff be trained to minimize the risk of phishing attacks, for example.
The categorization of risks can help the organization prioritize where to take further action.
4) Monitoring of risks
It's tempting to think that risk management is a task that can be put on a shelf once the four above mentioned steps have been completed. But we live in an ever-changing world where technology in particular is evolving at lightning speed - and so is the organization.
For the same reason, risks are not static; they change over time. So does the potential impact and likelihood of them occurring. Ongoing risk monitoring is therefore a necessary tool to ensure that risks are continuously assessed to see if they require new actions.