Risk Management Process - An Effective and Practical Approach

 Risk management is one of the most fascinating processes you face when managing any project, organization or strategy. Great, because identifying and assessing risk is both a creative and systematic process .

Companies that run a risk management process on a fairly typical multi-month project (no longer than 12 months) are likely to identify and manage five to ten easily identifiable project risks. However, this number should be much higher. With a large number of project risks identified early, the team becomes more aware of what to look for, so potential issues can be identified earlier and opportunities spotted more easily. 

It may seem that project risks cannot be managed without deviating from the actual project work. However, this can be effectively achieved through a seven-step risk management process that can be used and modified in any project.

The Risk Management Process

Step 1: Identify

You and your team discover, identify, and consider risks that may affect your project or its results. There are several techniques you can use to find project risk. At this stage, preparation for project risk registration begins. 

Step 2: Analyze

Once you have identified the risks, identify the likelihood and consequences of each risk. Gain a better understanding of the nature of risks and their potential impact on project objectives. This information is also recorded in the Project Risk Register. 

Step 3: Evaluate or Rank

Risk is assessed or ranked by determining the magnitude of the risk, which is a combination of probability and outcome. Decide whether the risk is acceptable or severe enough to be treated. These risk rankings are also added to the Project Risk Register. 

Step 4: Treat

Risks should be eliminated or managed as much as possible. This is done by experts in areas where risk is involved. 

Step 5: Monitor and Review

Not all risks can be excluded. Market risk and environmental risk are just two examples of risks that should always be monitored. It is important to make sure that you monitor all risk factors carefully. 

Risk management in India is an important process that managers must maintain within their organization. Risks are inevitable and managers need to devise better strategies to deal with them. The long-term survival of an organization depends on its ability to manage risk. The fierce competition in the global market has forced managers to focus on maintaining a strong risk management program by instilling values. 

Process Of Risk Management - The IRM India

 The Process Of Risk Management is the framework for the actions to be taken. Five basic steps have been adopted for risk management; these steps are called the risk management process. It starts with risk identification, continues with risk analysis, then the risk is prioritized, a solution is implemented and finally the risk is controlled. In manual systems, each step involves a lot of documentation and administration

Here are five important steps in the Process Of Risk Management.

1: Identify the Risk

The initial step in the risk management process is to identify the risks that the business is exposed to in its operating environment.

It is important to identify as many of these risk factors as possible. In a manual environment, these risks are noted down manually. If the organization has a risk management solution employed all this information is inserted directly into the system.

2: Analyze the Risk

Once the risk is identified, it must be analyzed. The extent of the risk must be determined. It is also important to understand the link between risk and various factors within the organization. To determine the severity and severity of a risk, it is necessary to see how many business functions are affected by the risk.

 There are risks that can bring an entire business to a halt if they materialize, while there are risks that are minor nuisances to analyze. In a manual risk management environment, this analysis must be done manually. When implementing a risk management solution, one of the most important basic steps is to map risks to various documents, policies, procedures and business processes. This means that the system already has a risk management framework that evaluates risks and informs you about the long-term impact of each risk.

3: Evaluate the Risk or Risk Assessment

Risks need to be ranked and prioritized. Most risk management solutions have different categories of risks, depending on the severity of the risk. A risk that may cause some inconvenience is rated lowly, risks that can result in catastrophic loss are rated the highest. It is important to rank risks because it allows the organization to gain a holistic view of the risk exposure of the whole organization. The business may be vulnerable to several low-level risks, but it may not require upper management intervention. On the other hand, just one of the highest-rated risks is enough to require immediate intervention.

4: Treat the Risk

Every risk must be eliminated or hidden as much as possible. And that by establishing contact with experts in the field where the risk belongs. In a manual environment, this involves contacting each stakeholder and then holding meetings so that everyone can talk and discuss the issues. The problem is that the discussion is split into many different email threads, in different documents and spreadsheets, and over many different phone calls. In a risk management solution, all relevant stakeholders can be informed from the system. The discussion about the risk and its possible solution can take place from within the system. Top management can also closely monitor proposed solutions and system progress. Instead of contacting everyone to get updates, everyone gets updates directly from the risk management solution.

5: Monitor and Review the Risk

Not all risks can be eliminated — some risks are always present. Market risks and environmental risks are just two examples of risks that always need to be monitored. Under manual systems monitoring happens through diligent employees. These professionals must make sure that they keep a close watch on all risk factors. Under a digital environment, the risk management system monitors the entire risk framework of the organization. If any factor or risk changes, it is immediately visible to everyone. Computers are also much better at continuously monitoring risks than people

Research Paper On Enterprises Risk Management — The IRM India

The enterprise risk management profession is fast evolving and as the world leader in ERM education and research, IRM is continuously identifying trends and strategies that are shaping the future. IRM offers thought leadership and publications covering varied topics across the globe to elevate the importance of enterprise risk management across industries and sectors. IRM also works with organizations, education institutions, IRM special interest / regional groups and IRM Qualified members to publish high-quality, in-depth research. IRM’s thought leadership programme looks at the crucial issues facing the enterprise risk management profession, both now and in the future.

Enterprise Risk Management (ERM)proposes that firms address all of their risks comprehensively and coherently instead of managing them individually. The Harvard Business Review listed ERM as one of the “breakthrough ideas for 2004”(Buchanan, 2004).Rating agencies, professional associations, legislative bodies, regulators, stock exchanges, international standards organizations, and consultants have vigorously urged firms to adopt ERM(Arena, Arnaboldi, & Azzone, 2010). Heeding such calls, leading financial services firms were some of the early adopters of ERM. Yet, the difficulties experienced by some of those firms during the 2008 financial crisis have cast doubt on the efficacy of ERM. For example, Countrywide Mortgage, praised in 2007 by the Institute of Internal Auditors as an exemplar of ERM, faced bankruptcies 2008.

If you want Research Paper On Enterprises Risk Management just visit The IRM India website.

Risk Identification Process in risk management - IRM

 The objective of the Risk Identification process is to identify a comprehensive list of risks and events that might impact the achievement of the organisation’s strategic objectives, including weaknesses, opportunities, threats, and sub-optimized results.

Identifying Risks is the first step in understanding the risks that may prevent the organisation from achieving its objectives, its overall risk exposure, and how risks should be managed.

The following should be considered while identifying Risks Identification in Risk Management

1. What is the Risk?
2. What can happen if it is not treated?
3. List the Risk & Possible Events
4. Why and how can the risk create a negative impact on the organisation?
5. List the root cause and event scenarios.

How can the risk be treated? List the tools and techniques to approach and treat the risk

All risks should be identified, regardless of whether they are under the organisation’s jurisdiction authority or related to the organisational business operations.

There are various risk identification tools utilised by organisations depending on the scope of business operations and other factors such as Management Systems, etc. Some of the Risk Identification tools include:

• Bow Tie Analysis
• Hazard & Operability Studies (HAZOP)
• Monte Carlos Simulation
• PESTLE
• Risk Register
• SWOT Analysis
• Event Tree Analysis
• Fault Tree Analysis

Risk registers are a common tool used when undergoing risk identification processes. ERM Risk registers are different from the risk and control matrices commonly used in internal audits. ERM risk registers represent risks to achieving strategic objectives, whereas risk registers for controls and internal audit purposes are generally at the process, activity, and task level.

Risk Assessment is to identify potential threats due to which risks are classified by using two separate values: Likelihood and Impact. Specifically, the main objective of Risk Assessment is to understand the threat. Risk Assessment is mainly undertaken to: Identify and Record all Potential Threats and to provide those threats with a Comparative Risk Value on a quantitative and qualitative aspect. The likelihood is described in different units such as once every 10 years, once every hundred times, once every 24 hours, etc. The impact is also described in different ways based on factors such as Safety (Lives Saved/Lost), Financial Loss, Production (Hours Saved/Lost), Reputational Loss, Asset Lost, etc.

The Evolution of Enterprise Risk Management — IRM

 About a decade ago, the now popular study performed by Mercer Management Consulting firm cited the primary causes of significant stock price failures amongst the Fortune 1000 Companies in the booming ’90s as events more descriptive under strategic and operational failures than events traditionally categorized as hazardous and financial. Ninety percent of the cases were categorized under causes that represented strategic and operational failures as the primary reasons for the stock drops. In almost every instance, the study cited multiple reasons for each of the individual stock collapses. In addition, in virtually every instance, the reason for the stock decline was categorized as a market reaction to a series of unanticipated and correlated events that generated non-fortuitous domino effects–bringing down the value of the firm.

Traditional risk management has viewed risk as a series of single elements, or silos. Each risk stood alone and was not related to the others. Optimizing risk management individually in each of the business units of a company meant optimizing risk management in the company overall.

Financial risk management continues today as it was then–a growing venue and opportunity for our profession as actuaries continue to manage risk through the use of financial hedging instruments. It is also a ripe opportunity for our profession to address the increasing fallout in credibility of traditional financial models and instruments in use today. At the same time, we also need to address the increasing need for improved tools and strategies to gauge the correlation of financial events that have dominoed into a series of correlated outcomes and recently crippled the financial and credit markets.

The Evolution of Risk Management truly represents the motivational evolution within business communities. This motivational evolution has transcended the traditional goals of reducing costs and reducing/avoiding/transferring risk to the more contemporary vision of maximizing revenue at reasonable risk to add value, the essence statement of an ERM framework. From the realization that silo-based risk management has its flaws, the emergence of new and larger risks (e-commerce, man-made and natural catastrophes, Enron-esque risk), the steady consolidation of insurance and financial institutions and the increased pressures on management accountability and corporate governance, the ERM evolution continues to affect us today with opportunities for our profession to make a difference.

Effective risk management process - The IRM India

 Risk management encompasses the identification, analysis, and response to risk factors that form part of the life of a business. Effective risk management means attempting to control, as much as possible, future outcomes by acting proactively rather than reactively. Therefore, effective risk management offers the potential to reduce both the possibility of a risk occurring and its potential impact.

Implementing a risk management process is vital for any organization. Good risk management doesn’t have to be resource intensive or difficult for organizations to undertake or insurance brokers to provide to their clients. With a little formalization, structure, and a strong understanding of the organization, the risk management process can be rewarding.

Risk management does require some investment of time and money but it does not need to be substantial to be effective. In fact, it will be more likely to be employed and maintained if it is implemented gradually over time.

The key is to have a basic understanding of the process and to move towards its implementation.

Risk management in India

 The educated Indian is the biggest asset for the country. As globalization opens doors, Indians are making their presence felf throughout the globe. The remittances of Indian professionals , termed as invisibles in the Balance of Payment accounts provide strength to the current account. The workforce is far more diversified and earns much more in per capita terms as skilled professionals move out of India to work. With the advanced world ageing, there is a demographic dividend that awaits India along with other countries like China who have young skilled workforce. Anticipating the global corporate trends, the emerging requirement in skills, the Indian academic institutions can play a major role to prepare the young generation for a better tomorrow. Risk management in India is a highly skilled profession with acute demand supply mismatches. As Indian primary and secondary education gives a strong mathematical grounding, Indian professionals can excel in the profession. However, since the State in its commanding heights absorbed much of the risks till economic liberalization beginning 1991, the Indian professionals lack exposure in complex markets. All this is changing fast and State initiatives in promoting risk management can lead to an India that is known as the hub of risk professionals.

Evolution of Enterprise Risk Management - The IRM India

 There is little guidance as to the practical implementation of enterprise risk management in companies as there are no precedents, standards, and methodologies in the law.

The complex nature of planning must be applied to a particular organization as a whole, and business leaders have significant costs and important tasks that require significant changes in risk management approaches and methods.

Barriers to implementing ERM at the enterprise level range from specific requirements such as decent software to those that are not easy to define, such as paradigm shifts in the minds of employees. Despite the data figures showing how preventing problems saves a lot of money, companies are struggling to allocate money against their optimistic and ignorant belief that catastrophic events won't happen. The data also shows that a relatively small percentage of small businesses have basic plans in place, such as crisis management and business recovery. In light of these statistics, it's no surprise that few companies have launched a true enterprise-level ERM approach.

A complete technical solution that addresses the core ERM process in an integrated way will take place over time and thus evolution of enterprise risk management will take place.ERM is widely accepted and becoming more and more important for companies. The need for implementation in the face of expensive professional services and potentially cost-effective software solutions is driving the market toward the production of viable technologies. Adopting standards that once existed in ERM establishes a baseline that enables software developers to offer a viable solution to a broader audience. The economy not only stimulates technological innovation based on supply and demand but also leads companies to adopt ERM based on the principle of competition. 

Enterprise Risk Management in India - The IRM India

 The goal of Enterprise Risk Management in India (ERM) is to eliminate the isolated approach to identifying, controlling and managing risk practices across the organization. By applying a consistent approach to ERM policies and procedures through a clearly defined organizational risk hierarchy, organizations can mitigate risks and identify new business opportunities.

Insurers have a long history of using risk management strategies. However, as their business models become more complex and their geographic reach expands, many large insurers are working to identify risk dependencies within the organization. Risk management is not only important for the largest companies; Even small and medium-sized insurers have to take a risk-centric approach to their organizations. From a financial perspective, ERM promotes the efficient allocation of capital to increase profitability and shareholder value.

Financial risk is just one step in the chair - if the insurer cannot identify and integrate risk areas throughout the business, the ERM will fail. Corporate ratings are an important indicator of an insurer's financial health for investors, consumers and regulators. And so, ERM adoption accelerated as rating agencies began rating insurance companies based on their ERM capabilities. Standard & Poor's, one of five independent agencies that evaluate the financial strength of life insurance companies, published ERM rating guidelines in 2005 and began rating ERMs as part of the rating process in early 2008.

It is at the insurer's discretion to shape the insurer's ERM initiatives and policies. Credit rating agencies do not evaluate insurers against an organization's risk structure, only whether their risk management functions are performing appropriately. ERM practices vary widely by insurer's geographic scope and industry. Credit rating agencies expect insurers to identify the most critical elements of risk affecting a wide range of businesses across credit, market, underwriting, operational and strategic risk categories.