Implementing a risk management framework will take time. Here are some tips to get you started.
As of 2016, business interruption was the leading risk that many businesses encountered. Ideally, it accounted for 58 percent of the risks.
Given the possibility of getting interrupted, you have every reason to create a robust risk management framework. Business interruptions can occur due to a variety of reasons.
This includes acts of terrorism, cyber attacks, disasters, and inclement weather conditions.
When severe, these events can lead to substantial losses.
For some small business, a shutdown might be sound judgment. The good thing is that you can be prepared.
In this post, we’re are going to show you how to create an effective risk management plan.
Keep on reading to learn more.
1. Risk Identification
The first step is to determine your internal and external risks. This will vary depending on your industry, location, and company size.
During this step, you must involve all your stakeholders. The goal is to look at the potential sources of problems. You want to look at the possible threats your business is facing. This includes financial loss, property loss, accidents, etc.
This way, it will easy to categories your risks. For examples, risks to property; personnel; program beneficiaries; equipment, and general operations. If your company works majorly on projects, a risk register is an ideal way to note the potential risks of those projects.
2. Risk Evaluation and Analysis
At this point, you have a list of potential risks that you’re likely to encounter.
What you need to know is to determine the likelihood of those risks to occur. Figure the stages of your productions or areas of your businesses that are likely to experience the risks.
If your main risks are weather-related, you need to identify the season or months that they’re likely to occur.
Ideally, an analysis is important to your risk management framework to identify the level of impact and likelihood of risks. You can use the low-moderate-high scale to rate each risk on your register.
3. Seek Help and Support
In most cases, a fresh set of eyes can help you develop an effective framework. Plus, implementing your plan is not a one-time task. As your business grows, you become vulnerable to new risks.
Today, risk management firms and consultation services, such as Poms & Associates risk control services, can be powerful allies. They bring legal, insurance, and risk mitigation knowledge to the table.
Such services are the go-to options if you’re unable to identify your risks. Some of them over assurance that if something goes wrong, your business will remain protected. Plus, the offer compliance checks and safety audits.
Also, your business can benefit from employee safety training. This is a crucial element of your risk management framework.
4. Identify the Potential Causes
What situations or circumstances can lead to the risks?
Your framework should list the possible circumstances that can cause your problems. Then, identify or create a team to manage those circumstances. For seasonal risks, an ad-hoc team can also work well if you’re concerned about the costs.
For each risk, try to identify several possible causes. This is because risk can have several triggers. This is will make it feasible for your team to ensure nothing slips through undetected.
It helps to have roles and responsibilities of each team member to avoid confusion. Keep in mind role confusion can also create room for potential risks.
5. Potential Risk Treatments and Solutions
Your risk management framework should also highlight the possible solutions to each risk. This way, it will be easier to select the course of action once a risk occurs.
Popular approaches include elimination, mitigation, retention, and transfer. Elimination usually works well if your team can predict the risk and avoid activities that can lead to it. You can apply mitigation in cases where you want to minimize the loss caused by a risk.
Each department if your business should come with collective ideas on how to handle risks. They need to a plan of action for addressing risks before they worsen or even happen.
If it’s a project, it’s always necessary to have a contingency plan. This will help to decrease the impact of the risks on the completion and success of the project.
6. Define Your Response Team
Risks can occur in certain departments or areas of your business. As such, determining who will responsible for each risk will ensure quick response when they occur.
For example, you need to have a person or team that will authorize the funds for mitigating risk. This is especially important for cases that result in a significant financial loss. You can also ensure such tasks have due dates. This will allow your team to create a timeline for handling the risk.
Having a team will also help to decide on the right plan of action. This involves weighing the benefits of mitigation and the time and resources it will take to achieve those benefits.
7. Monitor and Review Your Framework
As noted before, creating a risk management plan is not a one-time task. Change in business environments, such as legal policies, employment laws, and compliance standards, will affect your operation.
As such, you need to review and update your management plan often. Most importantly, you need to tweak your plan based on the previous handling of risks and your team’s performance.
As your business grows, you might need to add, modify, or remove the risks in your register.
Plus, it helps to know your team’s response and performance. This will help you change roles or give precise definitions of certain functions in your organization.
Create Your Risk Management Framework
With these steps, you now know how to create your risk management plan. Business risks can be costly. Some can lead to expensive lawsuits, massive financial loses, or even a business shut down.
You can stay on top of things by creating and improving your risk management framework. Ensure you have teams that monitor each stage of production and your equipment to prevent possible risks.
Do you have any thoughts or ideas on risk management? Feel free to share them with us in the comments.