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6 Steps of Risk Management Process

Every project brings new risks. It is impossible to entirely avoid risk; however, one can mitigate risks by utilizing different established risk management process.

It is a process that evaluates, and select different alternative regulatory and non-regularity responses to risk. 

Actually, Risk management Process (RMP) is a decision-making process that involves different factors such as political, economic and social with relevant risk assessments. Furthermore, these factors are used to analyze and compare essential regulatory options to choose the ideal regulatory response for protection from the hazard.

Risk Management Process Steps

There are different steps involved in the risk management process in project management. Let’s discuss each step one by one:

1. Identify The Risk

The first and foremost step is to identify potential risks. Identifying risk can become a headache process. However, it is not only a positive experience that will make one's project risks free at quite an extent, but one and one's entire team will also definitely learn a lot from this experience.

This step requires deep knowledge of the organization, the operating market and climatic environment where the system works. Moreover, one must be aware of the vulnerability to unseen damages, the manufacturing process, business mechanism, and the management system. 

Other important things include its financial weaknesses and strengths and legitimization.

Any failure in identifying risk can lead you to a major loss because it is the foundation of the risk management process.

Once one's team successfully figure out different possible issues, one should maintain a project risk register or log for concise and clear monitoring and tracking the risks through the entire project.

To maintain a project risk log is the most crucial part of every effective and efficient risk management process. One can’t only use this register to resolve the current issues but utilize as a reference point for past projects. Additionally, it will definitely help one to identify problems in any project.

2. Analyze The Risk

After finding out the risk, the next step is to analyze the potential severity of loss and probability of occurrence to take further decisions. 

Sometimes, you can easily measure the loss; however, one will have to make an educated guess in order to execute the risk management plan correctly. Therefore, there are only two primary sources of information which are: educated guesses and available statistics.

During this step, one and one's team estimate the probability of each risk and decide the starting point to focus first. These factors include time lost, organization’s financial losses and severity of risks, etc. When one keenly analyze a risk, it will further uncover some other issues in one's project so it will keep going on. 

After all, one will come to know the original problem.

Several risk formulas are available, but one of the best formulas that are widely accepted for risk quantification is the impact of the event multiplied by the rate of occurrence.

3. Potential Risk Treatment

After analyzing different aspects, one will figure out different risks. Each risk will fall into any of the 4 major categories:

  1. Risk Transfer: In this category, a party transfers entire or a part of the risk exposure or losses consequential to another party for a decided cost. This process is most often adopted in insurance contracts. There are a few other scenarios apart from the insurance in which risk can be transferred. 
  2. Risk Avoidance: It means to avoid the circumstances that can lead to further losses. In other words, try to stop performing any activity that results can carry some risks. It is somehow a tricky job because it is a possibility that one can stop a beneficial activity. So not entering to a business to protect oneself from risks can avoid one to earn profits as well.
  3. Risk Retention: It includes the losses emerging due to exposure will be assumed by the organization or a party. Risk-retention is basically an intentional decision for different organizations. The two most famous methods of risk retention are captive insurance and self-insurance.
  4. Risk Control: This is a fourth category in which one can avoid the loss or at least minimize it by risk control method.

4. Create The Plan

One can utilize one or combination of different methods to eradicate each risk. Whatever risk management decision one makes, the decision should be on the record and approved by the higher management authorities.

The plan should be effective and applicable, and covers all security aspects for risk management. Otherwise, it can create further severe problems. 

Furthermore, a good plan is executed under a responsible person with an appropriate schedule. Create a list of all risks with the priority.  One knows better which risk is extremely dangerous; so create a list accordingly.

5. Implementation

Now, one is good to go, implement the plan to mitigate the effects of the hazards. It is a fact that one can’t figure out all risks just in one go. However, when one figures out any risk, one executes a plan to attain success. 

Always make sure to start implementing plan priority wise. As a result, it will eliminate the risk or at least mitigate the risk somehow to avoid huge loss.

6. Review And Evaluation Of The Plan

The first attempt for the risk management process will never remove the entire risk from your project. 

However, it can decrease the risk a little bit.  One will have to repeat this process again and again to achieve the ultimate results.

In every cycle, one will have to analyze the results and plan before proposing a new execution plan. 

There are two basic reasons for this analysis:

  1. Is there any betterment in the results? So one will come to know that either one should go for the same plan or propose a new one.
  2. If the risk level has been changed due to the previous plan, one can alter the risk priority list for the new risk management cycle.

After the execution of every plan, one must include the obtained results into the process analysis.  That will dramatically improve the risk management procedure.

So there you have it; the six steps of the risk management process.