risk management assignment topics

Risk Management 101: Process, Examples, Strategies

Emily Villanueva

August 16, 2023

Effective risk management takes a proactive and preventative stance to risk, aiming to identify and then determine the appropriate response to the business and facilitate better decision-making. Many approaches to risk management focus on risk reduction, but it’s important to remember that risk management practices can also be applied to opportunities, assisting the organization with determining if that possibility is right for it.

Risk management as a discipline has evolved to the point that there are now common subsets and branches of risk management programs, from enterprise risk management (ERM) , to cybersecurity risk management, to operational risk management (ORM) , to  supply chain risk management (SCRM) . With this evolution, standards organizations around the world, like the US’s National Institute of Standards and Technology (NIST) and the International Standards Organization (ISO) have developed and released their own best practice frameworks and guidance for businesses to apply to their risk management plan.

Companies that adopt and continuously improve their risk management programs can reap the benefits of improved decision-making, a higher probability of reaching goals and business objectives, and an augmented security posture. But, with risks proliferating and the many types of risks that face businesses today, how can an organization establish and optimize its risk management processes? This article will walk you through the fundamentals of risk management and offer some thoughts on how you can apply it to your organization.

What Are Risks?

We’ve been talking about risk management and how it has evolved, but it’s important to clearly define the concept of risk. Simply put, risks are the things that could go wrong with a given initiative, function, process, project, and so on. There are potential risks everywhere — when you get out of bed, there’s a risk that you’ll stub your toe and fall over, potentially injuring yourself (and your pride). Traveling often involves taking on some risks, like the chance that your plane will be delayed or your car runs out of gas and leave you stranded. Nevertheless, we choose to take on those risks, and may benefit from doing so. 

Companies should think about risk in a similar way, not seeking simply to avoid risks, but to integrate risk considerations into day-to-day decision-making.

• What are the opportunities available to us?
• What could be gained from those opportunities?
• What is the business’s risk tolerance or risk appetite – that is, how much risk is the company willing to take on?
• How will this relate to or affect the organization’s goals and objectives?
• Are these opportunities aligned with business goals and objectives?

With that in mind, conversations about risks can progress by asking, “What could go wrong?” or “What if?” Within the business environment, identifying risks starts with key stakeholders and management, who first define the organization’s objectives. Then, with a risk management program in place, those objectives can be scrutinized for the risks associated with achieving them. Although many organizations focus their risk analysis around financial risks and risks that can affect a business’s bottom line, there are many types of risks that can affect an organization’s operations, reputation, or other areas.

Remember that risks are hypotheticals — they haven’t occurred or been “realized” yet. When we talk about the impact of risks, we’re always discussing the potential impact. Once a risk has been realized, it usually turns into an incident, problem, or issue that the company must address through their contingency plans and policies. Therefore, many risk management activities focus on risk avoidance, risk mitigation, or risk prevention.

What Different Types of Risks Are There?

There’s a vast landscape of potential risks that face modern organizations. Targeted risk management practices like ORM and SCRM have risen to address emerging areas of risk, with those disciplines focused on mitigating risks associated with operations and the supply chain. Specific risk management strategies designed to address new risks and existing risks have emerged from these facets of risk management, providing organizations and risk professionals with action plans and contingency plans tailored to unique problems and issues.

Common types of risks include: strategic, compliance, financial, operational, reputational, security, and quality risks.

Strategic Risk

Strategic risks are those risks that could have a potential impact on a company’s strategic objectives, business plan, and/or strategy. Adjustments to business objectives and strategy have a trickle-down effect to almost every function in the organization. Some events that could cause strategic risks to be realized are: major technological changes in the company, like switching to a new tech stack; large layoffs or reductions-in-force (RIFs); changes in leadership; competitive pressure; and legal changes.

Compliance Risk

Compliance risks materialize from regulatory and compliance requirements that businesses are subject to, like Sarbanes-Oxley for publicly-traded US companies, or GDPR for companies that handle personal information from the EU. The consequence or impact of noncompliance is generally a fine from the governing body of that regulation. These types of risks are realized when the organization does not maintain compliance with regulatory requirements, whether those requirements are environmental, financial, security-specific, or related to labor and civil laws.

Financial Risk

Financial risks are fairly self-explanatory — they have the possibility of affecting an organization’s profits. These types of risks often receive significant attention due to the potential impact on a company’s bottom line. Financial risks can be realized in many circumstances, like performing a financial transaction, compiling financial statements, developing new partnerships, or making new deals.

Operational Risk

Risks to operations, or operational risks, have the potential to disrupt daily operations involved with running a business. Needless to say, this can be a problematic scenario for organizations with employees unable to do their jobs, and with product delivery possibly delayed. Operational risks can materialize from internal or external sources — employee conduct, retention, technology failures, natural disasters, supply chain breakdowns — and many more.

Reputational Risk

Reputational risks are an interesting category. These risks look at a company’s standing in the public and in the media and identify what could impact its reputation. The advent of social media changed the reputation game quite a bit, giving consumers direct access to brands and businesses. Consumers and investors too are becoming more conscious about the companies they do business with and their impact on the environment, society, and civil rights. Reputational risks are realized when a company receives bad press or experiences a successful cyber attack or security breach; or any situation that causes the public to lose trust in an organization.

Security Risk

Security risks have to do with possible threats to your organization’s physical premises, as well as information systems security. Security breaches, data leaks, and other successful types of cyber attacks threaten the majority of businesses operating today. Security risks have become an area of risk that companies can’t ignore, and must safeguard against.

Quality Risk

Quality risks are specifically associated with the products or services that a company provides. Producing low-quality goods or services can cause an organization to lose customers, ultimately affecting revenue. These risks are realized when product quality drops for any reason — whether that’s technology changes, outages, employee errors, or supply chain disruptions.

Steps in the Risk Management Process

The six risk management process steps that we’ve outlined below will give you and your organization a starting point to implement or improve your risk management practices. In order, the risk management steps are: 

• Risk identification
• Risk analysis or assessment
• Controls implementation
• Resource and budget allocation
• Risk mitigation
• Risk monitoring, reviewing, and reporting

If this is your organization’s first time setting up a risk management program, consider having a formal risk assessment completed by an experienced third party, with the goal of producing a risk register and prioritized recommendations on what activities to focus on first. Annual (or more frequent) risk assessments are usually required when pursuing compliance and security certifications, making them a valuable investment.

Step 1: Risk Identification

The first step in the risk management process is risk identification. This step takes into account the organization’s overarching goals and objectives, ideally through conversations with management and leadership. Identifying risks to company goals involves asking, “What could go wrong?” with the plans and activities aimed at meeting those goals. As an organization moves from macro-level risks to more specific function and process-related risks, risk teams should collaborate with critical stakeholders and process owners, gaining their insight into the risks that they foresee.

As risks are identified, they should be captured in formal documentation — most organizations do this through a risk register, which is a database of risks, risk owners, mitigation plans, and risk scores.

Step 2: Risk Analysis or Assessment

Analyzing risks, or assessing risks, involves looking at the likelihood that a risk will be realized, and the potential impact that risk would have on the organization if that risk were realized. By quantifying these on a three- or five-point scale, risk prioritization becomes simpler. Multiplying the risk’s likelihood score with the risk’s impact score generates the risk’s overall risk score. This value can then be compared to other risks for prioritization purposes.

The likelihood that a risk will be realized asks the risk assessor to consider how probable it would be for a risk to actually occur. Lower scores indicate less chances that the risk will materialize. Higher scores indicate more chances that the risk will occur.

Likelihood, on a 5×5 risk matrix, is broken out into:

• Highly Unlikely
• Highly Likely

The potential impact of a risk, should it be realized, asks the risk assessor to consider how the business would be affected if that risk occurred. Lower scores signal less impact to the organization, while higher scores indicate more significant impacts to the company.

Impact, on a 5×5 risk matrix, is broken out into:

• Negligible Impact
• Moderate Impact
• High Impact
• Catastrophic Impact

Risk assessment matrices help visualize the relationship between likelihood and impact, serving as a valuable tool in risk professionals’ arsenals.

Organizations can choose whether to employ a 5×5 risk matrix, as shown above, or a 3×3 risk matrix, which breaks likelihood, impact, and aggregate risk scores into low, moderate, and high categories.

Step 3: Controls Assessment and Implementation

Once risks have been identified and analyzed, controls that address or partially address those risks should be mapped. Any risks that don’t have associated controls, or that have controls that are inadequate to mitigate the risk, should have controls designed and implemented to do so.

Step 4: Resource and Budget Allocation

This step, the resource and budget allocation step, doesn’t get included in a lot of content about risk management. However, many businesses find themselves in a position where they have limited resources and funds to dedicate to risk management and remediation. Developing and implementing new controls and control processes is timely and costly; there’s usually a learning curve for employees to get used to changes in their workflow.

Using the risk register and corresponding risk scores, management can more easily allocate resources and budget to priority areas, with cost-effectiveness in mind. Each year, leadership should re-evaluate their resource allocation as part of annual risk lifecycle practices.

Step 5: Risk Mitigation

The risk mitigation step of risk management involves both coming up with the action plan for handling open risks, and then executing on that action plan. Mitigating risks successfully takes buy-in from various stakeholders. Due to the various types of risks that exist, each action plan may look vastly different between risks. 

For example, vulnerabilities present in information systems pose a risk to data security and could result in a data breach. The action plan for mitigating this risk might involve automatically installing security patches for IT systems as soon as they are released and approved by the IT infrastructure manager. Another identified risk could be the possibility of cyber attacks resulting in data exfiltration or a security breach. The organization might decide that establishing security controls is not enough to mitigate that threat, and thus contract with an insurance company to cover off on cyber incidents. Two related security risks; two very different mitigation strategies. 

One more note on risk mitigation — there are four generally accepted “treatment” strategies for risks. These four treatments are:

• Risk Acceptance: Risk thresholds are within acceptable tolerance, and the organization chooses to accept this risk.
• Risk Transfer : The organization chooses to transfer the risk or part of the risk to a third party provider or insurance company.
• Risk Avoidance : The organization chooses not to move forward with that risk and avoids incurring it.
• Risk Mitigation : The organization establishes an action plan for reducing or limiting risk to acceptable levels.

If an organization is not opting to mitigate a risk, and instead chooses to accept, transfer, or avoid the risk, these details should still be captured in the risk register, as they may need to be revisited in future risk management cycles.

Step 6: Risk Monitoring, Reviewing, and Reporting

The last step in the risk management lifecycle is monitoring risks, reviewing the organization’s risk posture, and reporting on risk management activities. Risks should be monitored on a regular basis to detect any changes to risk scoring, mitigation plans, or owners. Regular risk assessments can help organizations continue to monitor their risk posture. Having a risk committee or similar committee meet on a regular basis, such as quarterly, integrates risk management activities into scheduled operations, and ensures that risks undergo continuous monitoring. These committee meetings also provide a mechanism for reporting risk management matters to senior management and the board, as well as affected stakeholders.

As an organization reviews and monitors its risks and mitigation efforts, it should apply any lessons learned and use past experiences to improve future risk management plans.

Examples of Risk Management Strategies

Depending on your company’s industry, the types of risks it faces, and its objectives, you may need to employ many different risk management strategies to adequately handle the possibilities that your organization encounters. 

Some examples of risk management strategies include leveraging existing frameworks and best practices, minimum viable product (MVP) development, contingency planning, root cause analysis and lessons learned, built-in buffers, risk-reward analysis, and third-party risk assessments.

Leverage Existing Frameworks and Best Practices

Risk management professionals need not go it alone. There are several standards organizations and committees that have developed risk management frameworks, guidance, and approaches that business teams can leverage and adapt for their own company. 

Some of the more popular risk management frameworks out there include:

• ISO 31000 Family : The International Standards Organization’s guidance on risk management.
• NIST Risk Management Framework (RMF) : The National Institute of Standards and Technology has released risk management guidance compatible with their Cybersecurity Framework (CSF).
• COSO Enterprise Risk Management (ERM) : The Committee of Sponsoring Organizations’ enterprise risk management guidance.

Minimum Viable Product (MVP) Development

This approach to product development involves developing core features and delivering those to the customer, then assessing response and adjusting development accordingly. Taking an MVP path reduces the likelihood of financial and project risks, like excessive spend or project delays by simplifying the product and decreasing development time.

Contingency Planning

Developing contingency plans for significant incidents and disaster events are a great way for businesses to prepare for worst-case scenarios. These plans should account for response and recovery. Contingency plans specific to physical sites or systems help mitigate the risk of employee injury and outages.

Root Cause Analysis and Lessons Learned

Sometimes, experience is the best teacher. When an incident occurs or a risk is realized, risk management processes should include some kind of root cause analysis that provides insights into what can be done better next time. These lessons learned, integrated with risk management practices, can streamline and optimize response to similar risks or incidents.

Built-In Buffers

Applicable to discrete projects, building in buffers in the form of time, resources, and funds can be another viable strategy to mitigate risks. As you may know, projects can get derailed very easily, going out of scope, over budget, or past the timeline. Whether a project team can successfully navigate project risks spells the success or failure of the project. By building in some buffers, project teams can set expectations appropriately and account for the possibility that project risks may come to fruition.

Risk-Reward Analysis

In a risk-reward analysis, companies and project teams weigh the possibility of something going wrong with the potential benefits of an opportunity or initiative. This analysis can be done by looking at historical data, doing research about the opportunity, and drawing on lessons learned. Sometimes the risk of an initiative outweighs the reward; sometimes the potential reward outweighs the risk. At other times, it’s unclear whether the risk is worth the potential reward or not. Still, a simple risk-reward analysis can keep organizations from bad investments and bad deals.

Third-Party Risk Assessments

Another strategy teams can employ as part of their risk management plan is to conduct periodic third-party risk assessments. In this method, a company would contract with a third party experienced in conducting risk assessments, and have them perform one (or more) for the organization. Third-party risk assessments can be immensely helpful for the new risk management team or for a mature risk management team that wants a new perspective on their program. 

Generally, third-party risk assessments result in a report of risks, findings, and recommendations. In some cases, a third-party provider may also be able to help draft or provide input into your risk register. As external resources, third-party risk assessors can bring their experience and opinions to your organization, leading to insights and discoveries that may not have been found without an independent set of eyes.

Components of an Effective Risk Management Plan

An effective risk management plan has buy-in from leadership and key stakeholders; applies the risk management steps; has good documentation; and is actionable. Buy-in from management often determines whether a risk management function is successful or not, since risk management requires resources to conduct risk assessments, risk identification, risk mitigation, and so on. Without leadership buy-in, risk management teams may end up just going through the motions without the ability to make an impact. Risk management plans should be integrated into organizational strategy, and without stakeholder buy-in, that typically does not happen. 

Applying the risk management methodology is another key component of an effective plan. That means following the six steps outlined above should be incorporated into a company’s risk management lifecycle. Identifying and analyzing risks, establishing controls, allocating resources, conducting mitigation, and monitoring and reporting on findings form the foundations of good risk management. 

Good documentation is another cornerstone of effective risk management. Without a risk register recording all of a company’s identified risks and accompanying scores and mitigation strategies, there would be little for a risk team to act on. Maintaining and updating the risk register should be a priority for the risk team — risk management software can help here, providing users with a dashboard and collaboration mechanism.

Last but not least, an effective risk management plan needs to be actionable. Any activities that need to be completed for mitigating risks or establishing controls, should be feasible for the organization and allocated resources. An organization can come up with the best possible, best practice risk management plan, but find it completely unactionable because they don’t have the capabilities, technology, funds, and/or personnel to do so. It’s all well and good to recommend that cybersecurity risks be mitigated by setting up a 24/7 continuous monitoring Security Operations Center (SOC), but if your company only has one IT person on staff, that may not be a feasible action plan.

Executing on an effective risk management plan necessitates having the right people, processes, and technology in place. Sometimes the challenges involved with running a good risk management program are mundane — such as disconnects in communication, poor version control, and multiple risk registers floating around. Risk management software can provide your organization with a unified view of the company’s risks, a repository for storing and updating key documentation like a risk register, and a space to collaborate virtually with colleagues to check on risk mitigation efforts or coordinate on risk assessments. Get started building your ideal risk management plan today!

Emily Villanueva, MBA, is a Senior Manager of Product Solutions at AuditBoard. Emily joined AuditBoard from Grant Thornton, where she provided consulting services specializing in SOX compliance, internal audit, and risk management. She also spent 5 years in the insurance industry specializing in SOX/ICFR, internal audits, and operational compliance. Connect with Emily on LinkedIn .

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Risk Management Dissertation Ideas

Published by Owen Ingram at January 2nd, 2023 , Revised On August 18, 2023

Identifying and assessing risks in various life situations is the focus of risk management dissertation topics. The key focus of risk management research topics is on risk prevention and risk mitigation. This field is growing in popularity among students every day because of the need for businesses and organisations to prevent and manage risks as part of their damage control strategies.

The decision of what to write about for your dissertation can be difficult. But there is no need to panic yet because you’ve come to the right place if you’re looking for risk management dissertation topics .

For Your Consideration, Here Are Some Excellent Risk Management Dissertation Ideas.

• Investigating the relationship between risk management and organizational performance.
• A review of the literature on the effects of decision support on risk management strategies in business contexts.
• How do insurance companies approach risk management in their organizations? Is it fair, or do some changes need to be made to improve it?
• Earthquake risk management should concentrate on potential barriers and opportunities.
• A descriptive analysis of the relationship between earthquake risk management and earthquake insurance.
• How social and environmental factors relate to risk management, either directly or indirectly.
• A review of empirical evidence on long-term risk management.
• Geotechnical risk management: a comparison of developed and developing countries.
• Investigating the guidelines and principles related to the risk management domain.
• The impact of the relationship between key individuals and business concepts, as well as the degree to which risk management tools are related.
• Investigating the connection between consumer safety and risk management.
• A quantitative study focuses on the factors for optimizing risk management in services.
• A detailed review of empirical evidence for a futuristic analysis of the risk management domain.
• Which of the following factors is a business’s most important risk management?
• Smart grid security risk management is a new area to research.
• Investigating the risk management strategies used in organizations in the UK.
• A correlational study of risk management and population health.
• Investigating the relationship between supply chain risk management and performance measurement.
• International comparison of traditional versus modern risk management strategies.
• A review of the literature on an international disaster risk management system.
• A descriptive analysis of risk management strategies in the pharmaceutical development industry.
• A correlational analysis of the relationship between risk perception and risk management.
• Focus on potential challenges and interventions in enterprise risk management.
• Risk management and big data in engineering and science projects.
• A review of empirical evidence on community-based disaster risk management.
• Portfolio risk management should emphasize the significance of six sigma quality principles.
• Using financial tools and operational methods to integrate supply chain risk management.
• Discovering risk management’s practical applications in Third World countries. Risk Management in a Supply Chain: How Have Current Trends in Global Supply Chain Management Influenced the Evolution of Risk-Management Strategies?
• Critical Success Factors for Financial Services Organizations Implementing an Operational Management System.

Nothing is more critical to a business than managing risks, whether large or small and bringing positive results to their customers. There is no doubt that the course will be interesting, and you will be able to find topics to write about using research methods such as diversity. Get expert assistance with your dissertation topics by placing an order for our dissertation topic and outline service today. You can take inspiration from the above-mentioned risk management dissertation ideas as well.

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Top 5 Amazing Topics for Risk Management Assignment

Searching for a suitable topic of the risk management assignment can consume your precious time as there are hundreds of important concepts and you might also get confuse while choosing a good one for you. But, you should not worry as we have come up with some of the easiest topics of risk management. Our writers who have years of experience in writing risk management assignments have prepared a list of a few topics that you will find easy and interesting to write assignments on.

1. What is Risk Management?

Risk can be defined as the uncertain event that can impact the growth of a system. Risk management is the process of identifying and eliminating events that can be harmful for the growth of an organization. Basically, there are Five risk management processes to ensure a risk-free environment and each step has its value in the final eradication of risk.

• Risk identification.
• Risk analyzation.
• Risk prioritization.
• Risk reassessment.
• Risk monitoring.

2. Best Topics for Risk Management

Our academic writers have prepared a list of some relevant topics that you should choose for writing your risk management assignment. These topics are most suitable and beneficial for the students of risk management since writing an assignment on these topics will help them gain enormous knowledge of this subject. Take a look at a few topics:

1. Financial Risk Management. 2. Human Resources Risk Management. 3. Liability Risk Management. 4. Enterprise Risk Management. 5. Property Risk Management.

Let’s talk about these topics in detail below:

1. Financial Risk Management

Financial risk management is the process of removing all the finance-related irregularities from an organization so that it doesn’t suffer the possible outcomes of risk. This topic is best suited for students who hold an interest in risk management and finance sector. But writing an assignment on this topic needs in-depth knowledge of both fields.

2. Human Resources Risk Management

This risk management process is used to identify the efficiency of humans in an organization. HR risk management is also used to maintain the right ratio of work and workforce so that maximum output can be achieved.

3. Liability Risk Management

It helps companies save a lot of money that is generally wasted on the claims of faulty products or unsatisfactory services. This risk management concept suggests the careful designing and multiple testing of the products so that end-user experience can be improved.

4. Enterprise Risk Management

It is used in enterprises to create plans in an organized manner. Also it helps in the right and timely execution of the plans. ERM also help in the better decision-making process as it works in the financial, strategic, and operational fields of an organization.

5. Property Risk Management

In an organization, a property is its physical infrastructure, and to maintain the pace of organizational operations, most businesses opt for a property risk management system. This system helps them protect their property during any unfortunate event.

3. Why Seek Risk Management Assignment Help from the Assignment Prime?

As risk management is a complex subject, writing an assignment on it can consume a lot of your precious study time. So, if you are having trouble balancing your studies and assignments, then you can seek risk management assignment help from us. We have a highly dedicated team of academic writers, proofreaders, and editors that works towards a single goal of producing high-quality documents so that every student can easily get top-notch grades in their academic documents.

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What Is Risk Management & Why Is It Important?

• 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

Access your free e-book today.

What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

• Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
• Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
• Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

• Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
• Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
• Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
• Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

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Risk management is the process of identifying, assessing and controlling financial, legal, strategic and security risks to an organization’s capital and earnings. These threats , or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters.

If an unforeseen event catches your organization unaware, the impact could be minor, such as a small impact on your overhead costs. In a worst-case scenario, though, it could be catastrophic and have serious ramifications, such as a significant financial burden or even the closure of your business.

To reduce risk, an organization needs to apply resources to minimize, monitor and control the impact of negative events while maximizing positive events. A consistent, systemic and integrated approach to risk management can help determine how best to identify, manage and mitigate significant risks.

Get insights to better manage the risk of a data breach with the latest Cost of a Data Breach report.

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At the broadest level, risk management is a system of people, processes and technology that enables an organization to establish objectives in line with values and risks.

A successful risk assessment program must meet legal, contractual, internal, social and ethical goals, as well as monitor new technology-related regulations. By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business protects itself from uncertainty, reduce costs and increase the likelihood of business continuity and success.

Three important steps of the risk management process are risk identification, risk analysis and assessment, and risk mitigation and monitoring.

Risk identification is the process of identifying and assessing threats to an organization, its operations and its workforce. For example, risk identification can include assessing IT security threats such as malware and ransomware, accidents, natural disasters and other potentially harmful events that could disrupt business operations.

Risk analysis involves establishing the probability that a risk event might occur and the potential outcome of each event. Risk evaluation compares the magnitude of each risk and ranks them according to prominence and consequence.

Risk mitigation refers to the process of planning and developing methods and options to reduce threats to project objectives. A project team might implement risk mitigation strategies to identify, monitor and evaluate risks and consequences inherent to completing a specific project, such as new product creation. Risk mitigation also includes the actions put into place to deal with issues and effects of those issues regarding a project.

Risk management is a nonstop process that adapts and changes over time. Repeating and continually monitoring the processes can help assure maximum coverage of known and unknown risks.

There are five commonly accepted strategies for addressing risk. The process begins with an initial consideration of risk avoidance then proceeds to 3 additional avenues of addressing risk (transfer, spreading and reduction). Ideally, these three avenues are employed in concert with one another as part of a comprehensive strategy. Some residual risk may remain.

Avoidance is a method for mitigating risk by not participating in activities that may negatively affect the organization. Not making an investment or starting a product line are examples of such activities as they avoid the risk of loss.

This method of risk management attempts to minimize the loss, rather than completely eliminate it. While accepting the risk, it stays focused on keeping the loss contained and preventing it from spreading. An example of this in health insurance is preventive care.

When risks are shared, the possibility of loss is transferred from the individual to the group. A corporation is a good example of risk sharing—several investors pool their capital and each only bears a portion of the risk that the enterprise may fail.

Contractually transferring a risk to a third-party, such as, insurance to cover possible property damage or injury shifts the risks associated with the property from the owner to the insurance company.

After all risk sharing, risk transfer and risk reduction measures have been implemented, some risk will remain since it is virtually impossible to eliminate all risk (except through risk avoidance). This is called residual risk.

Risk management standards set out a specific set of strategic processes that start with the objectives of an organization and intend to identify risks and promote the mitigation of risks through best practice.

Standards are often designed by agencies who are working together to promote common goals, to help to ensure high-quality risk management processes. For example, the ISO 31 000 standard on risk management is an international standard that provides principles and guidelines for effective risk management.

While adopting a risk management standard has its advantages, it is not without challenges. The new standard might not easily fit into what you are doing already, so you could have to introduce new ways of working. And the standards might need customizing to your industry or business. 

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157 Risk Assessment Essay Topic Ideas & Examples

🏆 best risk assessment topic ideas & essay examples, 👍 good essay topics on risk assessment, ⭐ simple & easy risk assessment essay titles, 📌 interesting topics to write about risk assessment, 🔎 good research topics about risk assessment, ❓ research questions on risk management.

• 1989 Hillsborough Stadium Disaster’s Risk Assessment Failure to analyze and approximate the risk before opening the gate led to a stampede. The assumption analysis technique of risk identification can recognize and prevent all the risks from occurring in the future.
• Villaggio Mall’s Risk Assessment The concept of risk assessment seeks to identify possible hazards and define the level of threat and vulnerability of a specific location or enterprise. We will write a custom essay specifically for you by our professional experts 808 writers online Learn More
• Apple Company’s Risk Assessment in China The purpose of this paper is to evaluate the economic, political, social, and capital risks of operating in China for Apple, a long-time investor in the Chinese economy.
• Risk Assessment and Practices of Dodge Ball The report also gives the strategies put in place to control hazards to reduce the risks of playing the game. No student should be allowed in the field of play without proper clothing and particularly […]
• The Atom Methodology for Project Risk Assessment Making the process of project implementation cost-effective is hugely important, and it would be unwise to dedicate extra time and resources to small projects of little importance.
• Risk Assessment and Safety Planning Depending on the type and texture of a floor, it is important to ensure that floors are free from any objects that may lead to incidences like tripping over.
• Risk Assessment Process in Five Steps Risk is measured by considering the potential amount of loss and the probability of the loss occurring.”Risk can be assessed either quantitatively or qualitatively.”If both the probability and severity can be quantified, the risk is […]
• New Juice Bar’s Risk Assessment in Boston Due to the challenges associated with the production quality and the durability of the raw materials, it is necessary to focus on the risks related to quality and technical requirements.
• Cargo Security Planning and Risk Assessment Cargo security planning involves analyzing the risks and creating solutions that minimize the challenges during the movement of goods. This may include the use of technology to ensure that cargo is theft-proof.
• THIRA, TRAM, and BTRA: Essential Tools for Risk Assessment and Management The goal of TRAM is to minimize the risk of terrorist attacks and ensure the safety of citizens and organizations. This model is used to identify and evaluate the potential risks of a biological system […]
• Effectiveness of Risk Assessment Planning The first step is to identify the risks, and in this case, it is the risk of an influenza pandemic in New Jersey.
• The Solvay Green River Mine Risk Assessment The risk assessment was conducted by identifying the key risk factors with the use of PESTLE. It is important to note that the given qualitative risk assessment will be based on the definition of risk […]
• Simons Inc.’s Engagement Team Risk Assessment The engagement team’s assessment of the design was appropriate because it stated that the risk of material misstatement is low since the Control team evaluates reports each month.
• The Chemical Storage Facility’s Risk and Liability Assessment The chemical storage facility is likely the source of the TCE and Benzene contamination in the area. Use bioremediation to break down the TCE and benzene in the groundwater.
• Risk Assessment in Social and Health Care In social and health care practice, it is important to consider both the positive and negative aspects of risk. When it comes to the first step, for a practitioner, the starting point is the consideration […]
• Asset-Based Risk Assessment and Control The goal of asset classification and recognition is to obtain all needed details of an organization’s assets in advance so that they might be used to respond to a risk impacting that asset.
• Market Research, Financial Analysis, and Risk Assessment Accordingly, in order to close this gap, it is necessary to analyze the missing aspects of the product offer and launch the production to close the gap.
• Diabetes Risk Assessment and Prevention It is one of the factors predisposing patients suffering from diabetes to various cardiovascular diseases. With diabetes, it is important to learn how to determine the presence of carbohydrates in foods.
• Fall Risk Assessment of Alzheimer’s Patient The nurse answers questions about the old lady helps fill the Stay Independent brochure and assists the observing physician in carrying the various clinical tests on the patient.
• MasterCard Company’s Risk Assessments Performing risk assessments on a regular basis allows an organization to stay abreast of emerging threats and make informed decisions about when and where to implement relief controls in the event of a change in […]
• The Centers for Diabetes’ Risks Assessment In general, the business case for the Centers for Diabetes appears to be positive since the project is closely aligned with the needs of the community and the targets set by the Affordable Care Act.
• Risk Assessment Options One strategy to lessen the risks involved with taking part in the global sports ministry is having diverse knowledge of all the customs and cultures of the potential host country.
• Diabetes Risk Assessment After completing the questionnaire, I learned that my risk for the development of diabetes is above average. Modern risk assessment tools allow identifying the current state of health and possibilities of developing the disease.
• Community Risk Assessment: Mental Health Disorders: New York The identified area of focus in the community is the prevalence of mental health disorders. These resources will ensure an adequate and comprehensive assessment of the mental health conditions within the community.
• Optimizing Pressure Ulcer Risk Assessment Tools to Increase the Patient Safety Today, there is a lack of standardized risk assessment tools in the clinical area to help nurses early predict the risk of pressure ulcers.
• Meta-Analysis of the Ethics of Risk Assessment and Risk Management in Juvenile Justice Similarly, it sought to investigate the ethical instruments of risk assessment that are instrumental in determination of treatment of juvenile offenders.
• Risk Assessment and Risk Management in Juvenile Justice This paper critiques the journal article “Risk and risk management in juvenile justice” by looking at its contribution to the topic, how poor professionalism and ethical issues surrounding risk assessment of juveniles may lead to […]
• Endometriosis: Risk Assessment in American Women Endometriosis is a chronic disorder that involves the growth of the endometrium outside the uterus and affects various areas in the body including the bowel, ovaries, fallopian tubes, and the pelvic region.
• Corporate Cyber Risk Assessment: Bank of America Arguably, one of the most epic accomplishments of the 21st century was the invention of the computer and the subsequent creation of the internet.
• Juvenile Delinquency: Risk Assessment The investigatory processes to know the individual’s character and personality involve the use of complex and simple approaches, and these serve to provide organizations or institutions dealing with child welfare with important information that would […]
• Terrorism Risk Assessment: Threat of Al Shabaab and Hezbollah to the USA Attacks such as those that happened outside the US and more are likely to occur due to what Hezbollah perceives as the US posing a threat to its ties with Iran.
• Perform a Risk Assessment Based on the Content of the Protocol Children above the age of 6 years will be slated to be dosed with 5 mg of nebulized salbutamol and 0.
• Country Risk Assessment in Hong Kong The leader of the Hong Kong government is the Chief Executive, who can be impeached by the Legislative Council. The executive has the mandate of enacting and enforcing the law in the region, and its […]
• Risk and Vulnerability Management and Assessment The primary school in the community is across the river. It also has a risk department which helps to ascertain the veracity of the dangers in the community.
• Risk Assessment of Stickley Furniture Company The riskiest job in the factory is the management and running of the woodcutting machine that requires an employee to manually feed wood logs into the machine.
• Herbicide X and Health Risk Assessment There is also the risk of exposure to breastfeeding babies as the chemicals in the herbicide can pass to them through their mothers’ milk.
• Financial Management: Risk Assessment As for the first one, this principle means that the faster the sum is invested the more the money is worth in the future. The standard deviation measurement is used to measure the risk of […]
• Building Studies. Risk Assessment and Management Environmental degradation is causing a lot of harm to the buildings being constructed in the current era, and there is a dire need of involving a hazard alleviation sector while undergoing a developmental project.
• Health Management. Falls Risk Assessment In 1999, a randomized controlled attempt was published which illustrated that the discontinuation of a subgroup of probable FRID or fall- risk increasing drugs such as antidepressants and sedatives can minimize the risk of falling.
• Colleen’s Risk Assessment Analysis Colleen is at high risk according to the Missouri risk assessment; she had a total score of 9 which is in the range for High risk: A score of 8+.
• Risk Assessment Models and Management Circle It can be defined as a set of practices utilized for the identification, evaluation, and estimation of existing levels of risk peculiar to different situations that emerge during the functioning of organizations, their investigation regarding […]
• Geriatric Fall-Risk Prevention and Assessment The presented case study considers a patient with Parkinson’s disease, whose incontinence, tremors, and gait problems increase the risk of falls.
• Risk Assessment of a Language Learning Process Within the frame of the fourth step, the documentation of findings, it would be necessary to structure the information on the ways to reduce risks.
• House Fire Fighting Risk Assessment As such, the objectives of the report are to identify general fire-related dangers as well as those specific to houses and compare them to each other to understand their severity.
• Qatar Civil Defence Department: Risk Assessment Governance is the ‘software which enables the operation of urban ‘hardware and must be designed to avoid devastating consequences to population and infrastructure from disaster risk.
• Medical Risk Management and Assessment Programs While risk management and risk assessment have different goals, I believe that their aim is similar, because they both focus on reducing the potential risks for their customers, with the exception that risk management programs […]
• Project Monitoring and Control and Risk Assessment Particularly, the risk of failing to obtain the required amount of oil to cover the expenses taken deserves to be mentioned; however, the specified threat also entails other risks, such as the threat of significant […]
• Berkshire Hathaway Company’s Risk Assessment Therefore, it is necessary to develop a specific protection plan and assess the efficiency and quality of the implementation of the technology used.
• The Department of Homeland Security Risk Assessment Unless it provided its services to the U.S.citizens and served to protect the United States from the possible attacks of those willing to change the political landscape of the country, the security of the residents […]
• Crisis Management Models for Risk Assessment To assess the relative risk of each of the risk events, the assessment tool quantified the probability of occurrence, impact on students, impact on staff, impact on learning, the preparedness of the institution, and the […]
• Role of Risk Assessment for Business That is, it should be decided whether the probability of occurrence of a risk or the severity of its impact takes priority when assessing the level of the risk.
• Behavioural Finance Issues in Risk Assessment Processes Moreover, the article by these authors accents on the fact that the modern portfolio theory is intended to analyze the possible return on investments as it requires making a graph to identify the average growth […]
• Food Product Risk Assessment The problem of the use of the substances in poultry presents a challenge due to the high risks of them adversely influencing the health of consumers.
• Risk Assessment Plan in Health & Human Services For this purpose, risk management plans include the step of risk assessment the process of “determining the probability that a risk will occur and the impact that event would have, should it occur”.
• Peru Economy and Business Risk Assessment To create suitable conditions and effective management strategies for the long-term success of the organization, the risk committee must focus its efforts on identifying and analyzing the scope of possible risks as well as the […]
• Woltech Company’s Information Security Risk Assessment Considering that the organisation uses various sources of the remote access and communication between the offices, it is necessary to ensure the high-quality protection of employees’ and Woltech’s data.
• Lifting Equation in Ergonomics Risk Assessment Measuring and recording task variables, which include the horizontal distance at the origin of the lift and the horizontal distance at the destination, the height of the lift origins and the height of the lift […]
• Forensic Psychology’s Risk Assessment In recent years, the assessment of the risk of violence has been one of the most discussed issues in the medical and legal community.
• Business Goals Achievement: Risk Assessment Strategy According to the vulnerability of assets, the impacts may be different. Thus, all the elements are linked, and a good risk assessment strategy addresses all of them.
• Healthcare Risk Assessment Methods The goal of risk assessment in healthcare is to measure the readiness of the healthcare system and ensure that it will not cause risks to patients or organization. The paper is aimed at the investigation […]
• Environmental Risk Assessment Advancement The thing is that the process of risk assessment is often criticized and questioned in the framework of its value and credibility.
• Winter Storms in Pennsylvania: Risk Assessment Investigation of the main hazards that pose a threat to the security of a certain community and its well-being is an important process that should be given great attention.
• Making Business Decisions: Kenya Risk Assessment The country has a trade ministry that controls and oversees all the trading activities in the country. The country through the Ministry of trade collects import duties on all import goods and services, a task […]
• Qualitative and Quantitative Risk Assessment One of the major goals and benefits of the approach is the possibility to prioritize risks. Controls are procedures that minimize the probability of transitioning through the entire chain of the risk event aimed at […]
• Wildfire Forensic Company’s Risk Assessment To assess the risk of Wildfire Forensic, it seems appropriate to define it. Assessing the risk of Wildfire Forensic, it is important to establish the levels of disruption resource unavailability.
• Company Risk Assessment: Qualitative or Quantitative Approaches The use of qualitative or quantitative approaches to assessing risk depends on the situation and objectives of the risk assessment exercise.
• Croatian Oil Drilling: Investment Risks Assessment An increase in the accuracy of the drilling process will allow for reducing the risk of an oil spill and, therefore, the loss of the investments made in the process, to a minimum.
• Oil Refinery Industry Risk Assessment Resting on these facts, it is possible to choose a certain industry and use the risk management approach in order to obtain the idea about the main peculiarities of its functioning and the ways in […]
• J. Smith & Associates Company’s Risk Assessment The prevention of the potential difficulties, which may arise in the project, has to be correlated with the essential aims of the reorganization.
• Quantitative Risk Assessment – Performance Plastics Inc The project scope includes a risk management plan for the expansion and acquisition of the Shimtech Industries by the Plastics Inc, company, which will be achieved by merging the departments of the companies and the […]
• Risk Identification, Assessment, and Handling It is only after identification of the risk that it can be feasible to investigate causes of the risk. Therefore, it is upon the management of any organization to ensure that efforts are made to […]
• Risk Assessment for Commercial Loans One function of the commission is reporting of the excessive budgets to the members as a criterion of early warning and facilitation of strictness, timeliness and effectiveness in the functioning of the pact.
• Environmental Risk, Risk Management, and Risk Assessment The estimation of the possible consequences includes presence of the hazard, the possibility of the receptors getting affected by the hazard and the consequential damage from exposure to the hazard.
• Risk Assessment and Contingency Plans Measurement The management can evaluate learning and growth in Canadian stores by measuring the amount of time it takes different department stores to assimilate the best practices of the Company.
• Nanotechnology Risk Assessment and Management Nanoparticles in the nuclear waste are easily absorbed by the human body leading to adverse effects of the respiratory system. These impurities are risky to the human health and the environment.
• Occupational Risk Assessment for Silica Dust In the determination of the human health risks at the workplace it is also very important to consider the nature and extent of the damage that might be caused by exposure to these risks at […]
• Risk Assessment in Handling Hazardous Materials The following measures must be observed; the first step is to make sure that paint is kept in a sealed container to prevent air from getting into the container.
• Indiana University Bloomington Natural Disaster Risk Assessment and Risk Management This high concentration of infrastructure is likely to increase the level of damages because a destruction of many buildings is likely to result in higher human deaths and more financial losses.
• Hurricanes in Indiana University Board Risk Assessment and Management Plan To assess the eventuality of an occurrence of a natural disaster, policy makers should access the geological and/or hydro-meteorological hazards to which a particular country or region is exposed; the location of Monroe County is […]
• Risk Assessment: Minimizing the Losses for Commercial Loans The preliminary categorization of the small and medium enterprises was based on: Location of the enterprise The category of industry that the enterprise participates in The size of the enterprise The age of the enterprise […]
• British Social Work: Risk Assessment and Management The 2007 UNICEF report on children in the UK and the USA, reveal the position children occupy to be at the bottom of the list in developed countries in conditions where a range of indicators […]
• Risk Assessment of Malathion Pesticide Are the hospitals in this city prepared enough to deliver treatment to individuals facing health problems due to spraying of Malathion if the council were to adopt the application of this pesticide throughout the city?
• Risk Assessment of a Warehouse Safety of warehouses in the United States is regulated by the Occupational Safety and Health Administration, as provided for under the Occupational Safety and Health Act which was legislated by the Congress and signed into […]
• IUB Natural Disaster Risk Assessments and Risk Management Due to the fact that Tornado is a natural disaster that locations around IUB need to be prepared of; there are lots of vulnerabilities in the University.
• Risk Factors Present in Offender Risk Assessments This trend is evident because of the increased cases of offences that necessitate the urgency in the development of quick risk assessment methods.
• GLM Realtors Risk Assessment Project for a Commercial Property This risk basically outlines the danger of having to deal with the problem of a shortfall in performed tasks because the danger in such a risk is that poor project performance can come from any […]
• Food Safety Risk Assessment Poultry is a reservoir of salmonella in human being due to the ability of salmonella to proliferate in the intestines of poultry.
• Adapting Ecological Risk Assessment for Ecosystem Valuation
• Advanced Lending Operations and Credit Risk Assessment Using Purchase Order Information
• Africa and the Global Economic Crisis: A Risk Assessment and Action Guide
• Agent-Based Risk Assessment Model of the European Banking Network
• Agricultural Supply Chain Risk Assessment in the Caribbean
• Airport Security and Security Risk Assessment
• The Nurses Role in Relation to Risk Assessment
• Assessing Financial Risks Using a Multicriteria Sorting Procedure
• Asset Allocation and Risk Assessment With Gross Exposure Constraints for Vast Portfolios
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How to Create a Project Risk Management Plan

By Kate Eby | February 27, 2023

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Teams can use a project risk management plan to identify and assess the potential risks to a project. We’ve gathered expert tips on creating an effective risk management plan, as well as step-by-step instructions for creating an example plan.

On this page, you’ll find information on what to include in a project risk management plan and how to create a plan , as well as step-by-step instructions for completing an example project risk management plan .

What Is a Project Risk Management Plan?

Project teams create a project risk management plan , a document that helps identify and assess potential risks to a project. The plan outlines how your team will analyze and mitigate the potential risks to ensure project success.

The project risk management plan is one of the most important documents in project risk management . You can learn more about project risks in general — as well as specific types of project risks — in our comprehensive guides

What Does a Risk Management Plan Cover?

A risk management plan should cover a number of areas detailing potential project risks and how your team will deal with them. It will include a description of the project, along with how your team will identify and assess risk.

At a minimum, your project risk management plan should include the following details:

• Project description, including its purpose
• The team plan for identifying, logging, and assessing potential risks
• How the team will identify broad categories of risk
• How the team will evaluate the severity of each potential risk
• How your team will continue to monitor risks throughout the project
• How team members will be assigned as owners of various risks
• Your organization’s tolerance for certain risks, along with criteria for a risk being too large to accept

“A risk management plan defines how the risks for a project will be handled to ensure that the project can be completed within the set timeframe,” says Veniamin Simonov, Director of Product Management at NAKIVO , a backup and ransomware recovery software vendor. “The plan should cover methodology, risk categorization and prioritization, a response plan, staff roles, and responsibility areas and budgets.”

“The risk management plan will address ‘What are we going to do? How are we going to do it? What are the processes we're going to follow?’” says Alan Zucker, Founding Principal of Project Management Essentials . “It may include things such as what are the major categories you're going to use to define your risks. It might also include some guidelines for assessing risks.”

Components in a Project Risk Management Plan 

A project risk management plan will include certain components and describe how your project team will use certain tools to understand and manage potential risks. Some components include a risk register, a risk breakdown structure, and a risk response plan.

Here are components or tools that a project risk management plan often includes or describes:

• Risk Register: A risk register is the document your project team will use to identify, log, and monitor potential project risks.
• Risk Breakdown Structure: A risk breakdown structure is a chart that allows your team to identify broad risk categories and specific risks that fit within each category. Your team can decide on the broad categories, depending on your project.
• Risk Assessment Matrix: A risk assessment matrix is a chart matrix that allows teams to score the severity of potential risks based on both the likelihood of each risk happening and the impact to the project if a risk happens.
• Risk Response Plan: A risk response plan is a document that details how your team plans to respond to each potential risk to try to either prevent it from happening or lessen the impact if it does happen. You can learn more about project risk mitigation . 
• Roles and Responsibilities: The risk management plan can provide details on the project risk management team, including the lead member for risk management. It also likely details the roles and responsibilities each team member will have in addressing and dealing with specific risks.
• Risk Reporting Formats: The risk management plan describes how the project team will document and report its work on monitoring and dealing with risks. It describes the risk register format that the team will use. It might also describe how risks will be added to or deleted from the register and how the project team will provide periodic summarized risk reports to top project and organization leaders.
• Project Funding and Timing: The plan will likely have a section describing the overall funding and timing for the project. That section also likely details funding for all project risk management work.

To determine what you need to include in your risk management plan, see the following requirements based on project size:

An Organization’s Risk Management Plan Often Doesn’t Change with Projects  

Many risk management experts emphasize that an organization’s project risk management plans might not change much from project to project. That’s because the plan sets out particulars that will be followed for all projects.

“Remember, it's just an approach document that answers the question: How?” says Kris Reynolds, Founder and CEO of Arrowhead Consulting in Tulsa, Oklahoma. “The company or the department as a whole should have a single risk management plan that gets built as you're building your project management methodology. And it’s your Bible. It’s your guidebook. 

“But it isn't going to change across projects,” Reynolds continues. “What changes are the artifacts, including the risk register. But your approach of how you're going to address risk or analyze risk or plan for risk is in the project risk management plan document. As a company or organization, you create that document, and it exists for a year or two years without changing.”

To create a project risk management plan, your team should gather important documents and decide on an approach for assessing and responding to risks. This process involves gathering support documents, listing potential risk management tools, and more. 

Consider some of these basic steps and factors as you begin creating the project risk management plan:

• Gather Supporting Documents: Gather and read through supporting documents related to the overall project, including the project and project management plan. It’s important for your project risk team to have a full view of project goals and objectives.
• Frame the Context: Make sure your team understands both the business value of the project and the impact on the organization if the project fails.
• Decide on Risk Assessment Criteria: Decide how your team will identify and assess important risks. That will require your team to have an understanding of which types of risks your organization can tolerate and which risks could be ruinous to the project.
• Inventory Possible Risk Management Tools: Make a list of risk management tools and documents that your team might use to help identify and manage project risk.
• Known Risks: At the start of a project, team members will be able to identify a number of known risks , such as budget issues, shortages of material, and human and other resource constraints, which are measurable and based on specific events. 
• Unknown Risks: At the start of a project, team members will not be able to identify a range of unknown risks that could impact your project. Those risks are not as easily or objectively measurable as known risks and can crop up at any point during a project. A main goal of project risk management is to help your team discover and address unknown risks before they happen.
• Unknowable Risks: Your team will not be able to anticipate unknowable risks that could affect the project, such as catastrophic weather events, accidents, and major system failures.
• Understand Human Bias: Studies have shown that people overestimate their ability to predict and influence the future. We often think we have more control than we do. Those biases can affect how we assess and manage risks in a project. We tend to give too much credence to what happened with past processes, fall into agreement with others in our group, and be more optimistic than we should be about how long a project will take or how much it will cost.  It’s important to account for all of those biases as your team identifies and assesses project risk.

Steps in Developing a Project Risk Management Plan

After your project team has gathered documents and done other preparation work, you will want to follow nine basic steps in creating a project risk management plan. Those start with identifying and assessing risks.

Here are details on the nine steps of project risk management to keep in mind while drafting your project risk management plan:

• Identify Risks: Your team should gather information and request input from team and organization members to determine potential risks to the project. Some specific risks can threaten many projects. Other risks will vary, based on the type of project and the industry. “If you're talking about a software project, you could have risks associated with the technology, resources, and interdependencies with other systems,” says Zucker. “If you have vendors you're working with, there may be risks associated with the vendors. There may be risks that are software- or hardware-specific. If you're working on a construction project, those risks obviously would be very different. ”You can learn more about project risk analysis and how to identify potential risks to a project .
• Assess Potential Impact of Each Risk: After your team identifies potential risks, it can assess the likelihood of each risk, along with the expected impact on the project if the risk happens. Your team can use a risk matrix to identify both the likelihood and impact of each risk. You can learn more about how to create a risk matrix and assess risks .
• Determine Your Organization's Risk Threshold and Tolerance: Your team will want to understand your organization’s risk threshold , or tolerance for risk. Organization leaders might decide that some risks should be avoided at all costs, while others are acceptable. Take the time to understand those views as you prioritize project risks.
• Prioritize Risks Based on Impact and Risk Tolerance: Once your team assesses the potential impact of a risk and your organization's risk tolerance for risks, it will prioritize risks accordingly. “Prioritize risks based on their disruptive potential for an organization,” says Simonov.
• Create a Risk Response Plan: Your team should then create a response plan for each risk that the team considers a priority. That response plan will include measures that could prevent the risk from happening or lessen the risk’s impact if it does happen.
• Select Project Risk Management Tools: Your team will need to decide on the best risk management tools to use for your project. That will likely include a risk register and a risk assessment matrix. It might include other tools, such as Monte Carlo simulations. Learn more about various tools and documents to use in risk management . 
• Select an Owner for Each Risk: Each identified risk should have an assigned owner. In some cases, a department might be an owner of a risk, but most often, the team will assign individuals to monitor risks. In some cases, the owner will be responsible for dealing with the risk if it happens. Teams can list the owners of each risk on their project risk register. 
• Determine Possible Triggers for Each Risk: As your team conducts a closer assessment of all risks, it should identify risk triggers where possible. Triggers are events that can cause a risk to happen. Your team won’t be able to identify triggers for all risks, but it will for some. For example, if you have a plant without sufficient backup power, a trigger could be warnings of a violent storm that could cause a power outage.
• Determine How Your Team Will Monitor Risks: An important part of your plan includes recording concrete details about how your team will ensure that it can continually monitor risks throughout the life of a project.

Risk Management Plan Examples, Templates, and Components

Examples of project risk management plans can help your team understand what information to include in a plan. The risk management plan can also detail various components that will be part of your team’s risk management.

Project Risk Management Plan Template

Download the Sample Project Risk Management Plan Template for Microsoft Word  

Download this sample project risk management plan, which includes primary components that might be described in a project risk management plan, such as details on risk identification, risk mitigation, and risk tracking and reporting.

Download the Blank Project Risk Management Plan for Microsoft Word

Use this blank template to create your own project risk management plan. The template includes sections to ensure that your team covers all areas of risk management, such as risk identification, risk assessment, and risk mitigation. Customize the template based on your needs.

Project Risk Register Template

Download the Sample Project Risk Register for Excel

This sample project risk register gives your team a better understanding of the information that a risk register should include to help the team understand and deal with risks. This sample includes potential risks that a project manager might track for a construction project.

Download the Blank Project Risk Register Template for Excel  

Use this project risk register template to help your team identify, track, and plan for project risks. The template includes columns for categorizing risks, providing risk descriptions, determining a risk severity score, and more.  

Quantitative Risk Register Template

Download the Sample Quantitative Project Risk Impact Matrix for Excel

This sample quantitative project risk impact matrix template can help your team assess a project risk based on quantitative measures, such as potential monetary cost to the project. The template includes columns where your team can assess and track the probability and potential cost of each project risk. The template calculates a total monetary risk impact based on your estimates of probability and cost.

Risk Breakdown Structure Template

Download the Risk Breakdown Structure Template for Excel

Your team can use this template to create a risk breakdown structure diagram that shows different types of risks that could affect a project. The template helps your team organize risks into broad categories.

Step-By-Step Guide to Creating a Project Risk Management Plan

Below are step-by-step instructions on how to fill out a project risk management plan template. Follow these steps to help you and your team understand the information needed in an effective risk management plan.

This template is based on a project risk management plan template created by Arrowhead Consulting of Tulsa, Oklahoma, and was shared with us by Kris Reynolds.

• Cover Section: Provide information for the cover section , also known as the summary section . This will include the name of the project, the project overview, the project goals, the expected length of the project, and the project manager.
• Risk Management Approach: Write a short summary of your organization's overall approach to project risk management for all projects, not only the project at hand. The summary might describe overall goals, along with your organization’s view of the benefits of good project risk management.
• Plan Purpose: Write a short summary explaining how the plan will help your team perform proper risk management for the project.
• Risk Identification: Provide details on how your team plans to identify and define risks to the project. Those details should include who is assigned to specific responsibilities for risk identification and tracking, as well as what information and categories will be included in your team’s project risk register.
• Risk Assessment: Provide details on how your team will assess the probability and potential impact of each risk it has identified. Your team should also include details on any risk matrices it plans to use and how the team will prioritize risks based on those matrices.
• Risk Response: Provide details on the ways your team can choose to respond to various risks. In the case of high-priority risks, that will include prevention or mitigation plans for each risk. In the case of low-priority risks, or risks that might be prohibitively expensive to mitigate, it might include accepting the risk with limited mitigation measures.
• Risk Mitigation: Provide more details on how your team plans to lessen the likelihood  or impact of each risk. Your team should also provide details on how it will monitor the effectiveness of prevention and mitigation strategies, and change them if needed.
• Risk Tracking and Reporting: Provide details on how your team plans to track and report on risks and risk mitigation activities. These details will likely include information on the project risk register your team plans to use and information on how your team plans to periodically report risk and risk responses to organizational leadership.

Do Complex Projects Require More Complex Project Risk Management Plans? 

Experts say that complex projects shouldn’t require more complex project risk management plans. A project might have more complex tools, such as a more detailed risk register, but the risk management plan should cover the same basics for all projects.

“The problem is, most people get these management plans confused. They then start lumping in the artifacts [such as risk registers] — which can be more complex and have more detail — to the risk management plan itself,” says Reynolds. “You want it to be easily understood and easily followed.

“I don't think the complexity of the project changes the risk management plan,” Reynolds says. “You may have to circulate the plan to more people. You may have to meet more frequently. You may have to use quantitative risk analysis. That would be more complex with more complex projects. But the management plan itself —  no.”

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The Risk Management Process in Project Management

When you start the planning process for a project, one of the first things you need to think about is: what can go wrong? It sounds negative, but pragmatic project managers know this type of thinking is preventative. Issues will inevitably come up, and you need a mitigation strategy in place to know how to manage risks when project planning .

But how do you work towards resolving the unknown? It sounds like a philosophical paradox, but don’t worry—there are practical steps you can take. In this article, we’ll discuss strategies that let you get a glimpse at potential risks, so you can identify and track risks on your project.

What Is Risk Management on Projects?

Project risk management is the process of identifying, analyzing and responding to any risk that arises over the life cycle of a project to help the project remain on track and meet its goal. Risk management isn’t reactive only; it should be part of the planning process to figure out the risk that might happen in the project and how to control that risk if it in fact occurs.

A risk is anything that could potentially impact your project’s timeline, performance or budget. Risks are potentialities, and in a project management context, if they become realities, they then become classified as “issues” that must be addressed with a risk response plan . So risk management, then, is the process of identifying, categorizing, prioritizing and planning for risks before they become issues.

Risk management can mean different things on different types of projects. On large-scale projects, risk management strategies might include extensive detailed planning for each risk to ensure mitigation strategies are in place if project issues arise. For smaller projects, risk management might mean a simple, prioritized list of high, medium and low-priority risks.

Project management software can help you keep track of risk. ProjectManager is online software that helps you identify risks, track them and calculate their impact. With our Risk view, you can make a risk list with your team and stay on top of all the risks within your project. Write a description, add tags, identify a resolution, mark impact and likelihood, even see a risk matrix—all in one place. Get started today with a free trial.

How to Manage Project Risk

To begin managing risk, it’s crucial to start with a clear and precise definition of what your project has been tasked to deliver. In other words, write a very detailed project charter , with your project vision, objectives, scope and deliverables. This way risks can be identified at every stage of the project. Then you’ll want to engage your team early in identifying any and all risks.

Don’t be afraid to get more than just your team involved to identify and prioritize risks, too. Many project managers simply email their project team and ask to send them things they think might go wrong on the project. But to better plot project risk, you should get the entire project team, your client’s representatives, and vendors into a room together and do a risk identification session.

With every risk you define, you’ll want to log it somewhere—using a risk tracking template helps you prioritize the level of risk. Then, create a risk management plan to capture the negative and positive impacts of the project and what actions you will take to deal with them. You’ll want to set up regular meetings to monitor risk while your project is ongoing. Transparency is critical.

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Risk Management Plan Template

Use this free Risk Management Plan Template for Word to manage your projects better.

What Is Positive Risk In Project Management?

Not all risk is created equally. Risk can be either positive or negative, though most people assume risks are inherently the latter. Where negative risk implies something unwanted that has the potential to irreparably damage a project, positive risks are opportunities that can affect the project in beneficial ways.

Negative risks are part of your risk management plan, just as positive risks should be, but the difference is in approach. You manage and account for known negative risks to neuter their impact, but positive risks can also be managed to take full advantage of them.

There are many examples of positive risks in projects: you could complete the project early; you could acquire more customers than you accounted for; you could imagine how a delay in shipping might open up a potential window for better marketing opportunities, etc. It’s important to note, though, that these definitions are not etched in stone. Positive risk can quickly turn to negative risk and vice versa, so you must be sure to plan for all eventualities with your team.

Managing Risk Throughout the Organization

Can your organization also improve by adopting risk management into its daily routine? Yes! Building a risk management protocol into your organization’s culture by creating a consistent set of risk management tools and templates, with training, can reduce overhead over time. That way, each time you start a new project, it won’t be like having to reinvent the wheel.

Things such as your organization’s records and history are an archive of knowledge that can help you learn from that experience when approaching risk in a new project. Also, by adopting the attitudes and values of your organization to become more aware of risk, your organization can develop a risk culture . With improved governance comes better planning, strategy, policy and decisions.

In the video below, Jennifer Bridges, professional project manager (PMP) explains what project risk management is and what are the key steps in this important process.

To manage project risks throughout your organization, it’s important to create a risk management plan. A risk management plan is a document that guides the risk management efforts of a team. It describes the potential risks of a project, the risk mitigation strategies to respond to them, the resources that will be needed and the reporting guidelines that will be followed. We have created a free risk management plan template for Word you can use for all your projects.

6 Steps in the Risk Management Process

So, how do you handle something as seemingly elusive as project risk management? You make a risk management plan. It’s all about the process. Turn disadvantages into an advantage by following these six steps.

Identify the Risk

You can’t resolve a risk if you don’t know what it is. There are many ways to identify risk. As you do go through this step, you’ll want to collect the data in a risk register .

One way is brainstorming with your team, colleagues or stakeholders. Find the individuals with relevant experience and set up interviews so you can gather the information you’ll need to both identify and resolve the risks. Think of the many things that can go wrong. Note them. Do the same with historical data on past projects. Now your list of potential risks has grown.

Make sure the risks are rooted in the cause of a problem. Basically, drill down to the root cause to see if the risk is one that will have the kind of impact on your project that needs identifying. When trying to minimize risk, it’s good to trust your intuition. This can point you to unlikely scenarios that you just assume couldn’t happen. Use a risk breakdown structure process to weed out risks from non-risks.

Analyze the Risk

Analyzing risk is hard. There is never enough information you can gather. Of course, a lot of that data is complex, but most industries have best practices, which can help you with your risk analysis . You might be surprised to discover that your company already has a framework for this process.

When you assess project risk you can ultimately and proactively address many impacts, such as avoiding potential litigation, addressing regulatory issues, complying with new legislation, reducing your exposure and minimizing impact.

So, how do you analyze risk in your project? Through qualitative and quantitative risk analysis, you can determine how the risk is going to impact your schedule and budget.

Project management software helps you analyze risk by monitoring your project. ProjectManager takes that one step further with real-time dashboards that display live data. Unlike other software tools, you don’t have to set up our dashboard. It’s ready to give you a high-level view of your project from the get-go. We calculate the live date and then display it for you in easy-to-read graphs and charts. Catch issues faster as you monitor time, costs and more.

Prioritize Risks & Issues

Not all risks are created equally. You need to evaluate the risk to know what resources you’re going to assemble towards resolving it when and if it occurs.

Having a large list of risks can be daunting. But you can manage this by simply categorizing risks as high, medium or low. Now there’s a horizon line and you can see the risk in context. With this perspective, you can begin to plan for how and when you’ll address these risks. Then, if risks become issues, it’s advisable to keep an issue log so you can keep track of each of them and implement corrective actions.

Some risks are going to require immediate attention. These are the risks that can derail your project. Failure isn’t an option. Other risks are important, but perhaps do not threaten the success of your project. You can act accordingly. Then there are those risks that have little to no impact on the overall project’s schedule and budget . Some of these low-priority risks might be important, but not enough to waste time on.

Assign an Owner to the Risk

All your hard work identifying and evaluating risk is for naught if you don’t assign someone to oversee the risk. In fact, this is something that you should do when listing the risks. Who is the person who is responsible for that risk, identifying it when and if it should occur and then leading the work toward resolving it?

That determination is up to you. There might be a team member who is more skilled or experienced in the risk. Then that person should lead the charge to resolve it. Or it might just be an arbitrary choice. Of course, it’s better to assign the task to the right person, but equally important in making sure that every risk has a person responsible for it.

Think about it. If you don’t give each risk a person tasked with watching out for it, and then dealing with resolving it when and if it should arise, you’re opening yourself up to more risk. It’s one thing to identify risk, but if you don’t manage it then you’re not protecting the project.

Respond to the Risk

Now the rubber hits the road. You’ve found a risk. All that planning you’ve done is going to be put to use. First, you need to know if this is a positive or negative risk. Is it something you could exploit for the betterment of the project? If not you need to deploy a risk mitigation strategy .

A risk mitigation strategy is simply a contingency plan to minimize the impact of a project risk. You then act on the risk by how you prioritize it. You have communications with the risk owner and, together, decide on which of the plans you created to implement to resolve the risk.

Monitor the Risk

You can’t just set forces against risk without tracking the progress of that initiative. That’s where the monitoring comes in. Whoever owns the risk will be responsible for tracking its progress towards resolution. However, you’ll need to stay updated to have an accurate picture of the project’s overall progress to identify and monitor new risks.

You’ll want to set up a series of project meetings to manage the risks. Make sure you’ve already decided on the means of communication to do this. It’s best to have various channels dedicated to communication.

Whatever you choose to do, remember to always be transparent. It’s best if everyone in the project knows what is going on, so they know what to be on the lookout for and help manage the process.

Risk Management Templates

We’ve created dozens of free project management templates for Excel and Word to help you manage projects. Here are some of our risk management templates to help you as you go through the process of identifying, analyzing, prioritizing and responding to risks.

Risk Register Template

A risk register is a risk management document that allows project managers to identify and keep track of potential project risks. Using a risk register to list down project risks is one of the first steps in the risk management process and one of the most important because it sets the stage for future risk management activities.

Risk Matrix Template

A risk matrix is a project management tool that allows project managers to analyze the likelihood and potential impact of project risks. This helps them prioritize project risks and build a risk mitigation plan to respond to those risks if they were to occur.

Managing Risk With ProjectManager

Using a risk-tracking template is a start, but to gain even more control over your project risks you’ll want to use project management software. ProjectManager has a number of tools including risk management that let you address risks at every phase of a project.

Make an Online Risk Register

Identify and track all the risks for your project in one place. Unlike other project management software, you can manage risks alongside your project rather than in a separate tool. Set due dates, mark priority, identify resolutions and more.

Gantt Charts for Risk Management Plans

Use our award-winning Gantt charts to create detailed risk management plans to prevent risks from becoming issues. Schedule, assign and monitor project tasks with full visibility. Gantt charts allow team members add comments and files to their assigned tasks, so all the communication happens on the project level—in real time.

Risk management is complicated. A risk register or template is a good start, but you’re going to want robust project management software to facilitate the process of risk management. ProjectManager is an online tool that fosters the collaborative environment you need to get risks resolved, as well as provides real-time information, so you’re always acting on accurate data. Try it yourself and see, take this free 30-day trial.

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Risk management is a study of management that identifies, assesses, and prioritises risks or potential threats that may affect an organisation's objectives. It takes appropriate measures to reduce, mitigate or eliminate those risks.

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What is Enterprise Risk Management (ERM)?

Leaders of organizations must manage risks in order for the entity to stay in business. In fact, most would say that managing risks is just a normal part of running a business. So, if risk management is already occurring in these organizations, what’s the point of “enterprise risk management” (also known as “ERM”)?

Let’s Start by Looking at Traditional Risk Management

Business leaders manage risks as part of their day-to-day tasks as they have done for decades. Calls for entities to embrace enterprise risk management aren’t suggesting that organizations haven’t been managing risks. Instead, proponents of ERM are suggesting that there may be benefits from thinking differently about how the enterprise manages risks affecting the business.

Traditionally, organizations manage risks by placing responsibilities on business unit leaders to manage risks within their areas of responsibility. For example, the Chief Technology Officer (CTO) is responsible for managing risks related to the organization’s information technology (IT) operations, the Treasurer is responsible for managing risks related to financing and cash flow, the Chief Operating Officer is responsible for managing production and distribution, and the Chief Marketing Officer is responsible for sales and customer relationships, and so on. Each of these functional leaders is charged with managing risks related to their key areas of responsibility. This traditional approach to risk management is often referred to as silo or stove-pipe risk management whereby each silo leader is responsible for managing risks within their silo as shown in Figure 1 below.

Figure 1 – Traditional Approach to Risk Management 

Limitations with Traditional Approaches to Risk Management

While assigning functional subject matter experts responsibility for managing risks related to their business unit makes good sense, this traditional approach to risk management has limitations, which may mean there are significant risks on the horizon that may go undetected by management and that might affect the organization. Let’s explore a few of those limitations.

Limitation #1: There may be risks that “fall between the silos” that none of the silo leaders can see. Risks don’t follow management’s organizational chart and, as a result, they can emerge anywhere in the business. As a result, a risk may be on the horizon that does not capture the attention of any of the silo leaders causing that risk to go unnoticed until it triggers a catastrophic risk event. For example, none of the silo leaders may be paying attention to demographic shifts occurring in the marketplace whereby population shifts towards large urban areas are happening at a faster pace than anticipated. Unfortunately, this oversight may drastically impact the strategy of a retail organization that continues to look for real estate locations in outlying suburbs or more rural areas surrounding smaller cities.

Limitation #2: Some risks affect multiple silos in different ways. So, while a silo leader might recognize a potential risk, he or she may not realize the significance of that risk to other aspects of the business. A risk that seems relatively innocuous for one business unit, might actually have a significant cumulative effect on the organization if it were to occur and impact several business functions simultaneously. For example, the head of compliance may be aware of new proposed regulations that will apply to businesses operating in Brazil. Unfortunately, the head of compliance discounts these potential regulatory changes given the fact that the company currently only does business in North America and Europe. What the head of compliance doesn’t understand is that a key element of the strategic plan involves entering into joint venture partnerships with entities doing business in Brazil and Argentina, and the heads of strategic planning and operations are not aware of these proposed compliance regulations.

Limitation #3: Third, in a traditional approach to risk management, individual silo owners may not understand how an individual response to a particular risk might impact other aspects of a business. In that situation, a silo owner might rationally make a decision to respond in a particular manner to a certain risk affecting his or her silo, but in doing so that response may trigger a significant risk in another part of the business. For example, in response to growing concerns about cyber risks, the IT function may tighten IT security protocols but in doing so, employees and customers find the new protocols confusing and frustrating, which may lead to costly “work-arounds” or even the loss of business.

Limitation #4: So often the focus of traditional risk management has an internal lens to identifying and responding to risks. That is, management focuses on risks related to internal operations inside the walls of the organization with minimal focus on risks that might emerge externally from outside the business. For example, an entity may not be monitoring a competitor’s move to develop a new technology that has the potential to significantly disrupt how products are used by consumers.

Limitation #5: Despite the fact that most business leaders understand the fundamental connection of “risk and return”, business leaders sometimes struggle to connect their efforts in risk management to strategic planning. For example, the development and execution of the entity’s strategic plan may not give adequate consideration to risks because the leaders of traditional risk management functions within the organization have not been involved in the strategic planning process. New strategies may lead to new risks not considered by traditional silos of risk management.

What’s the impact of these limitations? There can be a wide array of risks on the horizon that management’s traditional approach to risk management fails to see, as illustrated by Figure 2. Unfortunately, some organizations fail to recognize these limitations in their approach to risk management before it is too late.

Figure 2 – Currently Unknown, But Knowable Risks Overlooked by Traditional Risk Management

Effective Enterprise Risk Management (ERM) Should be a Valued Strategic Tool

Over the last decade or so, a number of business leaders have recognized these potential risk management shortcomings and have begun to embrace the concept of enterprise risk management as a way to strengthen their organization’s risk oversight. They have realized that waiting until the risk event occurs is too late for effectively addressing significant risks and they have proactively embraced ERM as a business process to enhance how they manage risks to the enterprise.

The objective of enterprise risk management is to develop a holistic, portfolio view of the most significant risks to the achievement of the entity’s most important objectives. The “e” in ERM signals that ERM seeks to create a top-down, enterprise view of all the significant risks that might impact the strategic objectives of the business. In other words, ERM attempts to create a basket of all types of risks that might have an impact – both positively and negatively – on the viability of the business.

An effective ERM process should be an important strategic tool for leaders of the business. Insights about risks emerging from the ERM process should be an important input to the organization’s strategic plan. As management and the board become more knowledgeable about potential risks on the horizon they can use that intelligence to design strategies to nimbly navigate risks that might emerge and derail their strategic success. Proactively thinking about risks should provide competitive advantage by reducing the likelihood that risks may emerge that might derail important strategic initiatives for the business and that kind of proactive thinking about risks should also increase the odds that the entity is better prepared to minimize the impact of a risk event should it occur. 

As illustrated by Figure 3, the ERM process should inform management about risks on the horizon that might impact the success of core business drivers and new strategic initiatives.

Figure 3 – ERM Should Inform Strategy of the Business

Elements of an ERM Process

Because risks constantly emerge and evolve, it is important to understand that ERM is an ongoing process. Unfortunately, some view ERM as a project that has a beginning and an end. While the initial launch of an ERM process might require aspects of project management, the benefits of ERM are only realized when management thinks of ERM as a process that must be active and alive, with ongoing updates and improvements.

The diagram in Figure 4 illustrates the core elements of an ERM process. Before looking at the details, it is important to focus on the oval shape to the figure and the arrows that connect the individual components that comprise ERM. The circular, clockwise flow of the diagram reinforces the ongoing nature of ERM. Once management begins ERM, they are on a constant journey to regularly identify, assess, respond to, and monitor risks related to the organization’s core business model.

Figure 4 – Elements of an ERM Process

ERM Starts with What Drives Value for the Entity

Because ERM seeks to provide information about risks affecting the organization’s achievement of its core objectives, it is important to apply a strategic lens to the identification, assessment, and management of risks on the horizon. An effective starting point of an ERM process begins with gaining an understanding of what currently drives value for the business and what’s in the strategic plan that represents new value drivers for the business. To ensure that the ERM process is helping management keep an eye on internal or external events that might trigger risk opportunities or threats to the business, a strategically integrated ERM process begins with a rich understanding of what’s most important for the business’ short-term and long-term success.

Let’s consider a public-traded company. A primary objective for most publically traded companies is to grow shareholder value. In that context, ERM should begin by considering what currently drives shareholder value for the business (e.g., what are the entity’s key products, what gives the entity a competitive advantage, what are the unique operations that allow the entity to deliver products and services, etc.). These core value drivers might be thought of as the entity’s current “crown jewels”. In addition to thinking about the entity’s crown jewels, ERM also begins with an understanding of the organization’s plans for growing value through new strategic initiatives outlined in the strategic plan (e.g., launch of a new product, pursuit of the acquisition of a competitor, or expansion of online offerings etc.). You might find our thought paper, Integration of ERM with Strategy , helpful given it contains three case study illustrations of how organizations have successfully integrated their ERM efforts with their value creating initiatives.

With this rich understanding of the current and future drivers of value for the enterprise, management is now in a position to move through the ERM process by next having management focus on identifying risks that might impact the continued success of each of the key value drivers. How might risks emerge that impact a “crown jewel” or how might risks emerge that impede the successful launch of a new strategic initiative? Using this strategic lens as the foundation for identifying risks helps keep management’s ERM focus on risks that are most important to the short-term and long-term viability of the enterprise. This is illustrated by Figure 5.

Figure 5 – Apply Strategic Lens to Identify Risks

The Focus is on All Types of Risks

Sometimes the emphasis on identifying risks to the core value drives and new strategic initiatives causes some to erroneously conclude that ERM is only focused on “strategic risks” and not concerned with operational, compliance, or reporting risks. That’s not the case. Rather, when deploying a strategic lens as the point of focus to identify risks, the goal is to think about any kind of risk – strategic, operational, compliance, reporting, or whatever kind of risk – that might impact the strategic success of the enterprise. As a result, when ERM is focused on identifying, assessing, managing, and monitoring risks to the viability of the enterprise, the ERM process is positioned to be an important strategic tool where risk management and strategy leadership are integrated. It also helps remove management’s “silo-blinders” from the risk management process by encouraging management to individually and collectively think of any and all types of risks that might impact the entity’s strategic success.

Output of an ERM Process

The goal of an ERM process is to generate an understanding of the top risks that management collectively believes are the current most critical risks to the strategic success of the enterprise. Most organizations prioritize what management believes to be the top 10 (or so) risks to the enterprise (see our thought paper, Survey of Risk Assessment Practices , that highlights a number of different approaches organizations take to prioritize their most important risks on the horizon). Generally, the presentation of the top 10 risks to the board focuses on key risk themes, with more granular details monitored by management. For example, a key risk theme for a business might be the attraction and retention of key employees. That risk issue may be discussed by the board of directors at a high level, while management focuses on the unique challenges of attracting and retaining talent in specific areas of the organization (e.g., IT, sales, operations, etc.).

With knowledge of the most significant risks on the horizon for the entity, management then seeks to evaluate whether the current manner in which the entity is managing those risks is sufficient and effective. In some cases, management may determine that they and the board are willing to accept a risk while for other risks they seek to respond in ways to reduce or avoid the potential risk exposure. When thinking about responses to risks, it is important to think about both responses to prevent a risk from occurring and responses to minimize the impact should the risk event occur. An effective tool for helping frame thinking about responses to a risk is known as a “Bow-Tie Analysis”, which is illustrated by Figure 6. The left side of the “knot” (which is the risk event) helps management think about actions management might take to lower the probability of a risk occurring. The right side of the “knot” helps management think about actions that could be taken to lower the impact of a risk event should it not be prevented (take a look at our article, The Bow-Tie Analysis: A Multipurpose ERM Tool).

Figure 6 – Bow-Tie Tool for Developing Responses to Risks

Monitoring and Communicating Top Risks with Key Risk Indicators (KRIs)

While the core output of an ERM process is the prioritization of an entity’s most important risks and how the entity is managing those risks, an ERM process also emphasizes the importance of keeping a close eye on those risks through the use of key risk indicators (KRIs). Organizations are increasingly enhancing their management dashboard systems through the inclusion of key risk indicators (KRIs) linked to each of the entity’s top risks identified through an ERM process. These KRI metrics help management and the board keep an eye on risk trends over time. Check out our thought paper, Developing Key Risk Indicators to Strengthen Enterprise Risk Management , issued in partnership with COSO for techniques to develop effective KRIs.

Leadership of ERM

Given the goal of ERM is to create a top-down, enterprise view of risks to the entity, responsibility for setting the tone and leadership for ERM resides with executive management and the board of directors. They are the ones who have the enterprise view of the organization and they are viewed as being ultimately responsible for understanding, managing, and monitoring the most significant risks affecting the enterprise.

Top management is responsible for designing and implementing the enterprise risk management process for the organization. They are the ones to determine what process should be in place and how it should function, and they are the ones tasked with keeping the process active and alive. The board of director’s role is to provide risk oversight by (1) understanding and approving management’s ERM process and (2) overseeing the risks identified by the ERM process to ensure management’s risk-taking actions are within the stakeholders’ appetite for risk taking. (Check out our thought paper, Strengthening Enterprise Risk Management for Strategic Advantage , issued in partnership with COSO, that focuses on areas where the board of directors and management can work together to improve the board’s risk oversight responsibilities and ultimately enhance the entity’s strategic value).

Given the speed of change in the global business environment, the volume and complexity of risks affecting an enterprise are increasing at a rapid pace. At the same time, expectations for more effective risk oversight by boards of directors and senior executives are growing. Together these suggest that organizations may need to take a serious look at whether the risk management approach being used is capable of proactively versus reactively managing the risks affecting their overall strategic success. Enterprise risk management (ERM) is becoming a widely embraced business paradigm for accomplishing more effective risk oversight.

Interested in Learning More About ERM?

As business leaders realize the objectives of ERM and seek to enhance their risk management processes to achieve these objectives, they often are seeking additional information about tactical approaches for effectively doing so in a cost-effective manner. The ERM Initiative in the Poole College of Management at North Carolina State University may be a helpful resource through the articles, thought papers, and other resources archived on its website or through its ERM Roundtable and Executive Education offerings . Each year, we survey organizations about the current state of their ERM related practices. Check out our most recent report, The State of Risk Oversight Report: An Overview of Enterprise Risk Management Practices.

Original Article Source:  “What is Enterprise Risk Management?”

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