Although risk management is so important and present in the daily lives of companies in the most diverse areas of activity, it is still a constant challenge. To deal with this, you can rely on a risk plan, which helps to map and mitigate these occurrences.
Keep reading and learn more about what risks are, why your company needs to pay attention to them and, above all, discover 12 tips to create an infallible risk plan. Check!
Free Ebook: How to Write a Risk Management Plan in 12 Steps
What is risk?
Risk is the effect (positive or negative) of an event or a series of events that manifests itself in one or several locations. It is calculated based on the probability of this event manifesting itself and the impact it could cause.
Some elements must be identified to analyze risks, including:
- Event: What could happen?
- Probability: How often could it happen?
- Impact: How bad will it be if it happens?
- Mitigation: How can you reduce your probability?
- Contingency: How could you reduce the impact of this event?
Within different markets and areas of activity, a risk can be very different. For example, in financial investments, a risk may refer to the possibility of losing money; In the health area, it can be related to the chance of developing a disease and the severity of that disease.
Regardless of the type of risk that an activity presents, it is essential to pay attention to good practices that aim to mitigate these occurrences. Risk management involves identifying, assessing, and taking steps to minimize or control any risks — and you’ll know how to do that soon.
What is a risk management plan?
A risk management plan (or just a risk plan) is a document that outlines how these occurrences will be identified, assessed, managed, and monitored. This document can refer to a specific project, a specific period, or even a specific activity or sector.
The risk plan is essential to ensure that potential issues are addressed systematically and proactively. This way, you can minimize negative impacts and, in addition, find and take advantage of opportunities for continuous improvement.
In general, a good risk plan has the following main components:
Risk Identification
Have a method to identify and list all potential risks that could affect the project or activity. This can be a document, a spreadsheet, or software. The important thing is to have well-defined criteria and constant control of all this.
Risk Analysis
Assess the probability of occurrence and the impact of each risk identified in the previous step. This analysis can be qualitative (containing description and categorization) and/or quantitative (having the numerical and probabilistic measures of each situation).
Risk Response Plan
Include specific strategies and actions that aim to mitigate or address the risks identified and analyzed in advance. Generally, stocks usually fall into four categories:
- Avoid – You need to change the risk plan to eliminate the risk or condition that causes it.
- Reduce – In this case, you implement actions to reduce the likelihood of the risk occurring and/or the impact it may have on the operation.
- Transfer – This type of measure aims to transfer the risk to another party (through insurance or contracts, for example).
- Accept – In this case, the response plan recognizes possible risks and prepares the company to manage them, if they occur.
Monitoring and Review
It is the ongoing process of monitoring risks and evaluating the effectiveness of strategies to respond to them. This step, also includes updating the risk plan as needed and reviewing the risks over time.
Documentation and Communication
Finally, remember to record all information related to risks and their management strategies. In addition, have easy and agile methods of communication between all parties that deal with this topic, so that control is agile, easy and scalable.
Why have a risk plan?
Having a risk management plan is crucial if you want your company to be prepared for unforeseen events. In addition, the plan helps mitigate their risks.
With this documentation, a corporation can strengthen the success and sustainability of a project, enterprise, or activity — as long as it is done right.
Learn below some of the main benefits that your company can have by having a risk plan.
- Anticipation and preparation: A risk plan helps to identify and anticipate potential problems before they even arise. This way, you have time to prepare responses and strategies, which in turn minimizes the negative impact of risks.
- Reduction of uncertainties: This benefit connects with the previous one. By identifying and analyzing a company’s risks, the management plan reduces uncertainty and generates more confidence when making a more informed decision. This is especially true for companies that operate in dynamic and complex markets.
- Resource Protection: This care helps optimize the consumption of valuable resources, such as time, money, and even talent. This is because, by mitigating risks, you also reduce the probability of wasting these resources, thus avoiding losses.
- Increased Confidence: A risk plan increases the confidence of stakeholders, investors, and team members. It shows that your company is prepared to deal with challenges and minimize negative impacts.
- Compliance: In many industries and for many organizations, risk management is a regulatory or regulatory requirement. Having a risk management plan in place helps ensure that you are compliant with these requirements.
- Quick and Effective Response: A well-crafted plan outlines clear actions to address risks when they arise. Thus, you will always have a fast, coordinated and qualified response to minimize the impact of occurrences.
- Identification of Opportunities: Risk management is not limited to avoiding problems. Thanks to it, you can also identify opportunities for improvement and improvement. By analyzing the risks, your business can identify areas of growth or expansion opportunities to explore.
- Continuous Improvement: Finally, the review and continuous monitoring of risks helps to adjust strategies, processes, and routines. In this way, your company can promote constant improvement and adaptation to new circumstances without great friction within the teams.
How to prepare a risk plan: 12 tips to make everything easier
Now that you know the main concepts behind risk management, let’s go to the 12 steps that will help you prepare a risk plan. By following the tips below, you will be able to face any adversity in your organization efficiently.
1. Define your scope
As we have seen, risks are present in many areas of an organization. Therefore, you need to define the scope of your risk plan. Will you assess the risks of a project? Of a process? From a list of assets? Or your strategic planning? Stipulate the parameters of your risk management by taking into account questions like these.
2. Gather information
Gather several people who have a relationship with the project and ask them about what could happen as a result of each risk, how to help prevent them, and what to do when they become a reality. Take a lot of notes and also use data from past history, as well as market benchmarks. You’ll use all of this in the next steps.
3. Identify the risks and their consequences
Together with your team, list the risks and associate each of them with their respective consequences. Remember to be specific: “lack of resources” is not as useful as “half of the raw material is missing to complete the activity”. If there is a monetary value connected to the risk present, list it.
4. Identify the controls for each risk
Controls are activities, procedures, or mechanisms that, if implemented, can change the likelihood or impact of a risk. Therefore, identify the controls that already exist in each risk, as well as those that can/should still be implemented.
5. Assign a probability
For each risk on your list, determine whether the probability of it materializing is high, medium, or low. This is the most common scale on the market, but you can create your own measurement form according to your needs.
6. Measure the impact
Assess the impact of each risk, rating them as high, medium, or low. If you must use numbers, create the list of impacts on a numerical scale. The same can be done with probability analysis.
7. Determine the level of risk
Usually, this measurement is carried out through a table, but this is not the ideal way to do it. It is best to use risk management software, which allows for a more complex and accurate classification. Remember that there is no universal formula for combining probability and impact, and this calculation can vary between companies/projects.
8. Sort risks according to your assessments
Next, list all the risks you have identified and assessed, organizing them from most critical to least critical.
9. Plan mitigation and contingency strategies
Mitigation aims to reduce the likelihood of a risk materializing. Contingency, on the other hand, aims to reduce the impact of a risk if it materializes. Focus on mitigating and contingency risks with high or medium results. Then, you can turn your attention to mitigating lower risks.
10. Analyze the effectiveness of the strategies implemented
Once you’ve planned your strategies, analyze how much you could reduce the likelihood and impact of risks by applying it. Evaluate your mitigation and contingency strategies and, if necessary, reassess your risks if the result is not satisfactory.
11. Calculate your residual risk
After the contingency and mitigation plans were applied, did the evaluation improve? This means that you have achieved a reduction in your risk and that it is now within an acceptable level. If not, review your planning and strategies, and evaluate whether everything was applied as it had been planned.
12. Monitor your risks
The final tip for developing a risk plan is to determine a way to know when these risks will occur. That way, you’ll know when to put corrective actions into practice. To do this, use a series of indicators and alerts that keep this constant watch combined with triggers and alerts for each of the mapped risks (especially high and medium ones). This way, you will be able to know when a risk becomes something of concern and act quickly to mitigate it.
Conclusion
Now you know about the importance of a risk plan and know the 12 steps that help you create one in your company with efficiency and agility.
That way, you won’t lose any eye risk and you can have the peace of mind that the main threats to your corporation are mapped and have a defined correction plan in case they occur.
Looking for more efficiency and compliance in your operations? Our experts can help you identify the best strategies for your company with SoftExpert solutions. Contact us today!
