risk management plan

risk management plan

Developing a Comprehensive Risk Management Plan: Strategies for Identifying, Evaluating, and Mitigating Risks

1. Introduction to Risk Management

However, these activities can only be seen as subtasks within the context of risk management planning. On a broader basis, strategies for risk identification, evaluation and assessment, and for controlling or mitigating risk require a structured strategic planning and control process. The following paper describes the nature and different types of risks to which firms are exposed and lists the various strategic instruments that can be used to develop a comprehensive risk planning strategy.

Firms face a variety of risks to the smooth running of their business operations. These include risks such as market, financial, product quality and safety, operational, and human resources. In today’s highly competitive and global marketplace, an inadequate response to risk has led to bankruptcy, dissolution, and litigation for many firms. Despite the diversity and serious threats to which they are exposed, many companies – particularly smaller enterprises – have not yet learned to develop and implement a comprehensive strategy for the management of such risks. To a large extent, risk management planning activities are confined to the traditional domains of risk identification in the occupational health and safety and financial areas. The Occupational Health and Safety Act obligates companies to install risk prevention systems in the workplace, while the requirements of the budgeting and controlling system oblige firms to try to quantify the financial risks.

2. Key Components of a Risk Management Plan

A complete risk management plan is a must – it is imperative. Dr. Matthew Lee, a recognized leader in the small business financial world, has highlighted several reasons for developing a risk management plan. Property insurance is needed in order to protect assets, secure loans, and attract potential investors. A failure to implement loss control initiatives will increase ongoing business costs as a result of continuing concern risk-related risk. Furthermore, the government is increasing its involvement in business regulation and is imposing regulations with which businesses must comply. Businesses with a good operating history can secure insurance at more favorable rates. Small businesses have legal and ethical responsibilities when purchasing insurance.

Development of a comprehensive risk management plan is not just an important initiative for small businesses – it is imperative. To successfully compete in today’s fiercely competitive world market, it is necessary for small businesses to define and formalize the business planning process. An organization must first identify its mission, business strengths and weaknesses, plans, and goals. A business planning process, if comprehensively employed, will examine the external – political, economic, sociological, technological, ecological, and competitive-commercial forces. The process will also recognize and evaluate partners’ strengths and weaknesses. Such an assessment will also allow for the accurate identification of strengths and weaknesses that have been determined through employee assessment, evaluations, and job performance measurements.

3. Risk Identification and Assessment Strategies

Customers, employees, and suppliers come into underwriting assessment and management decisions, but it is shareholders who invest funds at risk in the search for an attractive overall economic return, cash, and future prospects. Customer satisfaction is the consequence of business success and is achieved by all management, leadership, and employees working together to improve the revenue base and the risk-reward relationships. Product quality is linked, for example, to employee productivity and share performance. The tension derives from managers being responsible for formulating corporate policy and for undertaking business activity to achieve goals within ethical and legal parameters. Effective risk management has both strategic and operational aspects. It should exist throughout the enterprise as an integral part of policy formulation, day-to-day decision-making, and proactive planning covering downside protective and upside exploitation opportunities. Stakeholders want protection from leadership and governance failure, whether it is insufficient enterprise capital, key skill levels, security against these major risks, or entities falling victim to the workings of an unfairly manipulated market.

An effective internal control system can go some way towards ensuring that organizational objectives are achieved, and that internal and external stakeholder demands are met efficiently and effectively. There is a crowded corporate governance agenda dealing with directors’ stewardship duties, but there is no one size that fits all. All stakeholders stand to gain where there is open and trustworthy communication. Exercising stewardship responsibility is not so easy when performance reporting may be more a matter of marketing than a true and fair view. A number of specific roles and responsibilities are connected with organizing, directing, and controlling the activities of the enterprise in the best interests of its owners.

4. Risk Mitigation and Response Techniques

Scope-related risks include undetected errors during discovery and future changes in requirements or scope. Risks related to undetected errors should be mitigated through both the scheduling and application of quality control activities. Quality control processes used for different types of work are specific to the type of work being executed. The following techniques are applicable to software development projects and are included as an example: production quality control procedures (proof of correctness, peer reviews, software inspection, automated testing, manual testing, regression testing) are enforced to identify and correct development defects as early as possible.

Implementing risk response actions should change the probability of occurrence or impact of the risks they address. Risk tolerance thresholds – the budget allocation and the amount of uncertainty – are the boundary or limit of the organization’s willingness to take risks. Reassessing risk during different phases of the project is necessary. Risk management should be continuously monitored, evaluated, and revised throughout the project and program. Risk response strategies focus on three areas: preserving or enhancing the opportunity, ensuring that potential opportunities are realized, and preventing risk events from occurring. The risk tolerance threshold captures the degree of acceptable variation from quantity requirements during each phase of the project life cycle.

5. Monitoring and Reviewing the Risk Management Plan

Review independently all the process areas and transactions to evaluate the risk management process and controls as it should have. Need assistance developing or implementing your risk management process? Our experts can help.

Evaluate the process as a whole and its effectiveness. Look for patterns in the portfolio and adapt the process to mitigate these deficiencies. Transactions and corporate communications. Look for patterns in the data and identify the areas of the company where the transaction volume or type of transaction handled is deviating. Conduct separate focus groups with transaction level personnel to assess the risks and controls and to gather any relevant information needed.

Use the risk appetite discussed previously to assess the current level of risk and resources required to manage risks. The individual risk identified and evaluated in the process should be weighted against the data available to minimize uncertainty. Any new or existing, developing risk should be integrated or removed from consideration. Concentrate on the uncertainties of the portfolio associated with the likelihood and impact of failure.

Review our list of risk management goals and determine if we are achieving these goals. Modify the process to reach these goals. It’s better to have an evaluation on the quality of the risk management process and its performance.

All employees involved in the risk management process should know how it operates. Communicate the importance of the process and encourage full participation and continuous improvement. Do they understand why they participate and the goals sought in determining how they should participate and interact with the process?

Your plan will become outdated over time as new risks emerge or as current risks change. A failure to keep your analysis current can lead to inaccurate assumptions and poor decision making. It’s important, therefore, that you schedule an annual or bi-annual review to evaluate its effectiveness.