In a particular business, Risk Management is defined to be a process in which identification, monitoring of potential risks is achieved in order to minimize the negative impact they may have on an organization. Examples of potential risks include security breaches, data loss, cyber attacks, system failures and natural disasters. An effective operational risk management process helps to identify, which risk poses the biggest threat to an organization and the guidelines for handling them is provided accordingly.
There are 3 steps involved in Risk Management and they include Risk Assessment & Analysis, Risk Evaluation & Risk Treatment. Let’s understand the details of each of them.
Risk Assessment & Analysis
The first step of the risk management process is termed to be called as risk assessment and analysis stage. A risk assessment helps to evaluate an organization’s exposure to an unknown & uncertain event, which could impact its day-to-day operations and estimates the damages these events could have on an organization’s revenue and reputation.
It requires an intimate knowledge of the organization along with the market in which it operates upon, the legal, social, political and cultural environment in which it exists, as well as creating a sound understanding of its strategic and operational objectives.
Once it is effectively assessed & analyzed, it helps the organization to protect its assets, improve its decision making & finally helps optimize the operational efficiency which helps to save time, money & resources.
After the risk assessment and analysis has been completed, a risk evaluation should take place. A risk evaluation compares the estimated risk against risk criteria that the organization has already established. Risk criteria can include associated costs and benefits, socio-economic factors, legal requirements and system malfunctions.
Risk Treatment & Response
The last step in the risk management process is risk treatment and response. Risk treatment is the implementation of policies and procedures that will help avoid or minimize risks. Risk treatment also extends to risk transfer and risk financing.
So we just need to understand that, Risk management is an ongoing process & does not end once risks have been identified & mitigations of risks have been processed. The organization’s risk management policies is revisited every year so that up to date policies are formed as per the requirements.