There are five basic steps taken to manage risk; these steps are called the risk management process. It starts with the identification of risks, continues with the analysis of the risks, then the risk is prioritized, a solution is implemented and, finally, the risk is monitored. Business risk management (ERM) is the process of identifying, evaluating, managing and monitoring potential risks. Its general objective is to minimize the damage that risks can cause to an organization.
In the financial world, risk management is the process of identifying, analyzing, and accepting or mitigating uncertainty in investment decisions. Basically, risk management occurs when an investor or fund manager analyzes and attempts to quantify the possible losses of an investment, such as a moral hazard, and then takes appropriate measures (or inaction) depending on the investment objectives and risk tolerance of the fund. The risk owner and the risk manager will classify and prioritize each identified risk and opportunity according to the probability of occurrence and the severity of the impact, according to the criticality scales of the project. On the other hand, a high-impact, low-probability risk may require urgent action and even the intervention of top management.
Inevitably, problems will arise, and it is necessary to have a mitigation strategy to know how to manage risks when planning a project. Risk managers are responsible for ensuring that a formal process is in place to identify risks and develop response plans through exchanges with risk owners. Or, you can dedicate an entire project in ProjectManager to managing risks, so you can quickly see how urgent risks are being addressed. Include internal and external shareholders in all risk communication at every stage of the risk management lifecycle.
With an effective risk management process, a company can identify which of these risks pose the greatest threats and then implement the best measures for those risks at acceptable levels. Positive risk can quickly turn into negative risk and vice versa, so be sure to plan for all contingencies with your team. Investment managers who follow an active strategy assume other risks to achieve higher returns than the market. Negative risks are part of your risk management plan, just as positive risks should be, but the difference is in the approach.
An organization's risk management policies should be reviewed every year to ensure that the policies are up to date and relevant. See these risks, understand and act accordingly to protect your business with Reciprocity's Risk Observation, Assessment and Correction (ROAR) platform. Risks are potentialities and, in the context of project management, if they become realities, they are classified as “problems that must be addressed with a risk response plan”. Therefore, risk management is the process of identifying, categorizing, prioritizing and planning risks before they become problems.
