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What Is Risk Management & Why Is It Important?

• 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

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What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

• Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
• Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
• Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

• Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
• Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
• Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
• Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

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Identifying Risks

Physical risks, location risks, human risks, technology risks, strategic risks, making a risk assessment, insuring against risks, risk prevention, the bottom line.

• Business Essentials

Identifying and Managing Business Risks

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Running a business comes with many types of risk. Some of these potential hazards can destroy a business, while others can cause serious damage that is costly and time-consuming to repair. Despite the risks implicit in doing business, CEOs and risk management officers can anticipate and prepare, regardless of the size of their business.

Key Takeaways

• Some risks have the potential to destroy a business or at least cause serious damage that can be costly to repair.
• Organizations should identify which risks pose a threat to their operations.
• Potential threats include location hazards such as fires and storm damage, a l cohol and drug abuse among personnel, technology risks such as power outages, and strategic risks such as investment in research and development.
• A risk management consultant can recommend a strategy including staff training, safety checks, equipment and space maintenance, and necessary insurance policies.

If and when a risk becomes a reality, a well-prepared business can minimize the impact on earnings, lost time and productivity, and negative impact on customers. For startups and established businesses, the ability to identify risks is a key part of strategic business planning . Risks are identified through a number of ways. Strategies to identify these risks rely on comprehensively analyzing a company's specific business activities. Most organizations face preventable, strategic and external threats that can be managed through acceptance, transfer, reduction, or elimination.

A risk management consultant can help a business determine which risks should be covered by insurance.

Below are the main types of risks that companies face:

Building risks are the most common type of physical risk. Think fires or explosions. To manage building risk, and the risk to employees, it is important that organizations do the following:

• Make sure all employees know the exact street address of the building to give to a 911 operator in case of emergency.
• Make sure all employees know the location of all exits.
• Install fire alarms and smoke detectors.
• Install a sprinkler system to provide additional protection to the physical plant, equipment, documents and, of course, personnel.
• Inform all employees that in the event of emergency their personal safety takes priority over everything else. Employees should be instructed to leave the building and abandon all work-associated documents, equipment and/or products.

Hazardous material risk is present where spills or accidents are possible. The risk from hazardous materials can include:

• Toxic fumes
• Toxic dust or filings
• Poisonous liquids or waste

Fire department hazardous material units are prepared to handle these types of disasters. People who work with these materials, however, should be properly equipped and trained to handle them safely.

Organizations should create a plan to handle the immediate effects of these risks. Government agencies and local fire departments provide information to prevent these accidents. Such agencies can also provide advice on how to control them and minimize their damage if they occur.

Among the location hazards facing a business are nearby fires, storm damage, floods, hurricanes or tornados, earthquakes, and other natural disasters. Employees should be familiar with the streets leading in and out of the neighborhood on all sides of the place of business. Individuals should keep sufficient fuel in their vehicles to drive out of and away from the area. Liability or property and casualty insurance are often used to transfer the financial burden of location risks to a third-party or a business insurance company.

There are other business risks associated with location that are not directly related to hazards, such as city planning. For example, a gas station exists on a major road, and as a result of its location, it receives plenty of business. City planning can eventually restructure the area around the gas station. The city may close the road the gas station is on, build other infrastructure that would make the gas station inaccessible, or overall just not take the gas station into consideration with any redevelopment. This would leave the gas station with no traffic to serve.

Alcohol and drug abuse are major risks to personnel in the workforce. Employees suffering from alcohol or drug abuse should be urged to seek treatment, counseling, and rehabilitation if necessary. Some insurance policies may provide partial coverage for the cost of treatment.

Protection against embezzlement , theft and fraud may be difficult, but these are common crimes in the workplace. A system of double-signature requirements for checks, invoices, and payables verification can help prevent embezzlement and fraud. Stringent accounting procedures may discover embezzlement or fraud. A thorough background check before hiring personnel can uncover previous offenses in an applicant's past. While this may not be grounds for refusing to hire an applicant, it would help HR to avoid placing a new hire in a critical position where the employee is open to temptation.

Illness or injury among the workforce is a potential problem. To prevent loss of productivity, assign and train backup personnel to handle the work of critical employees when they are absent due to a health-related concern. Other human-related risks under public attention could be associated with their behaviors and values. Misbehavior of management related to bias, racism, sexism, harassment, corruption, discrimination, pollutive actions, and carelessness about the environment are all actions that represent risk for the companies where these managers work.

A power outage is perhaps the most common technology risk. Auxiliary gas-driven power generators are a reliable back-up system to provide electricity for lighting and other functions. Manufacturing plants use several large auxiliary generators to keep a factory operational until utility power is restored.

Computers may be kept up and running with high-performance back-up batteries. Power surges may occur during a lightning storm (or randomly), so organizations should furnish critical business systems with surge-protection devices to avoid the loss of documents and the destruction of equipment.

Cloud storage is another source of risks nowadays. The process involves backing up data with Amazon Web Services, for example, using Azure, IBM, and Oracle, for instance. This is a huge undertaking that should be considered given the reliance on cloud-based data to run most businesses now. It is important to establish both offline and online data backup systems to protect critical documents.

Although telephone and communications failure are relatively uncommon, risk managers may consider providing emergency-use company cell phones to personnel whose use of the phone or internet is critical to their business.

Strategy risks are not altogether undesirable. Financial institutions such as banks or credit unions take on strategy risk when lending to consumers, while pharmaceutical companies are exposed to strategy risk through  research and development  for a new drug. Each of these strategy-related risks is inherent in an organization's business objectives. When structured efficiently, the acceptance of strategy risks can create highly profitable operations.

Companies exposed to substantial strategy risk can mitigate the potential for negative consequences by creating and maintaining infrastructures that support high-risk projects. A system established to control the financial hardship that occurs when a risky venture fails often includes diversification of current projects, healthy cash flow, or the ability to finance new projects in an affordable way, and a comprehensive process to review and analyze potential ventures based on future return on investment .

After the risks have been identified , they must be prioritized in accordance with an assessment of their probability. The first step is to establish a probability scale for the purposes of risk assessment .

For example, risks may:

• Be very likely to occur
• Have some chance of occurring
• Have a small chance of occurring
• Have very little chance of occurring

Other risks must be prioritized and managed in accordance with their likelihood of occurring. Actuarial tables —statistical analysis of the probability of any risk occurring and the potential financial damage ensuing from the occurrence of those risks—may be accessed online and can provide guidance in prioritizing risk.

Insurance is a principle safeguard in managing risk, and many risks are insurable. Fire insurance is a necessity for any business that occupies a physical space, whether owned outright or rented, and should be a top priority. Product liability insurance, as an obvious example, is not necessary for a service business.

Some risks are an inarguably high priority, for example, the risk of fraud or embezzlement where employees handle money or perform accounting duties in accounts payable and receivable. Specialized insurance companies will underwrite a cash bond to provide financial coverage in the event of embezzlement, theft or fraud.

When insuring against potential risks, never assume a best-case scenario. Even if employees have worked for years with no problems and their service has been exemplary, insurance against employee error may be a necessity. The extent of insurance coverage against injury will depend on the nature of your business. A heavy manufacturing plant will, of course, require more extensive coverage for employees. Product liability insurance is also a necessity in this context.

If a business relies heavily on computerized data—customer lists and accounting data, for example—exterior backup and insurance coverage is necessary. Finally, hiring a risk management consultant may be a prudent step in the prevention and management of risks.

The best risk insurance is prevention. Preventing the many risks from occurring in your business is best achieved through employee training, background checks, safety checks, equipment maintenance and maintenance of the physical premises. A single, accountable staff member with managerial authority should be appointed to handle risk management responsibilities. A risk management committee may also be formed with members assigned specific tasks with a requirement to report to the risk manager.

The risk manager, in conjunction with a committee, should formulate plans for emergency situations such as:

• Hazardous materials accidents or the occurrence of other emergencies

Employees must know what to do and where to exit the building or office space in an emergency. A plan for the safety inspection of the physical premises and equipment should be developed and implemented regularly including the training and education of personnel when necessary. A periodic, stringent review of all potential risks should be conducted. Any problems should be immediately addressed. Insurance coverage should also be periodically reviewed and upgraded or downgraded as needed.

Prevention is the best insurance against risk. Employee training, background checks, safety checks, equipment maintenance, and maintenance of physical premises are all crucial risk management strategies for any business.

While business risks abound and their consequences can be destructive, there are ways and means to ensure against them, to prevent them, and to minimize their damage, if and when they occur. Finally, hiring a risk management consultant may be a worthwhile step in the prevention and management of risks.

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Risk management is the process of identifying, assessing and controlling financial, legal, strategic and security risks to an organization’s capital and earnings. These threats , or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters.

If an unforeseen event catches your organization unaware, the impact could be minor, such as a small impact on your overhead costs. In a worst-case scenario, though, it could be catastrophic and have serious ramifications, such as a significant financial burden or even the closure of your business.

To reduce risk, an organization needs to apply resources to minimize, monitor and control the impact of negative events while maximizing positive events. A consistent, systemic and integrated approach to risk management can help determine how best to identify, manage and mitigate significant risks.

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At the broadest level, risk management is a system of people, processes and technology that enables an organization to establish objectives in line with values and risks.

A successful risk assessment program must meet legal, contractual, internal, social and ethical goals, as well as monitor new technology-related regulations. By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business protects itself from uncertainty, reduce costs and increase the likelihood of business continuity and success.

Three important steps of the risk management process are risk identification, risk analysis and assessment, and risk mitigation and monitoring.

Risk identification is the process of identifying and assessing threats to an organization, its operations and its workforce. For example, risk identification can include assessing IT security threats such as malware and ransomware, accidents, natural disasters and other potentially harmful events that could disrupt business operations.

Risk analysis involves establishing the probability that a risk event might occur and the potential outcome of each event. Risk evaluation compares the magnitude of each risk and ranks them according to prominence and consequence.

Risk mitigation refers to the process of planning and developing methods and options to reduce threats to project objectives. A project team might implement risk mitigation strategies to identify, monitor and evaluate risks and consequences inherent to completing a specific project, such as new product creation. Risk mitigation also includes the actions put into place to deal with issues and effects of those issues regarding a project.

Risk management is a nonstop process that adapts and changes over time. Repeating and continually monitoring the processes can help assure maximum coverage of known and unknown risks.

There are five commonly accepted strategies for addressing risk. The process begins with an initial consideration of risk avoidance then proceeds to 3 additional avenues of addressing risk (transfer, spreading and reduction). Ideally, these three avenues are employed in concert with one another as part of a comprehensive strategy. Some residual risk may remain.

Avoidance is a method for mitigating risk by not participating in activities that may negatively affect the organization. Not making an investment or starting a product line are examples of such activities as they avoid the risk of loss.

This method of risk management attempts to minimize the loss, rather than completely eliminate it. While accepting the risk, it stays focused on keeping the loss contained and preventing it from spreading. An example of this in health insurance is preventive care.

When risks are shared, the possibility of loss is transferred from the individual to the group. A corporation is a good example of risk sharing—several investors pool their capital and each only bears a portion of the risk that the enterprise may fail.

Contractually transferring a risk to a third-party, such as, insurance to cover possible property damage or injury shifts the risks associated with the property from the owner to the insurance company.

After all risk sharing, risk transfer and risk reduction measures have been implemented, some risk will remain since it is virtually impossible to eliminate all risk (except through risk avoidance). This is called residual risk.

Risk management standards set out a specific set of strategic processes that start with the objectives of an organization and intend to identify risks and promote the mitigation of risks through best practice.

Standards are often designed by agencies who are working together to promote common goals, to help to ensure high-quality risk management processes. For example, the ISO 31 000 standard on risk management is an international standard that provides principles and guidelines for effective risk management.

While adopting a risk management standard has its advantages, it is not without challenges. The new standard might not easily fit into what you are doing already, so you could have to introduce new ways of working. And the standards might need customizing to your industry or business. 

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How to Build a Comprehensive Risk Management Plan

Aaron Lancaster

January 29, 2024

Risk management is an essential component of any successful project management plan. A risk management plan outlines strategies to identify, assess, and mitigate potential risks associated with a project. A well-thought-out risk management plan can help to ensure the success of a project by minimizing unexpected risks and ensuring that resources are used effectively. In this blog post, we’ll discuss how to create an effective risk management plan to maximize success and minimize risk.

Understanding the Importance of Risk Management

Risk management is not just a fancy buzzword thrown around in the world of audit, risk, and compliance. It is a crucial element that can make or break the success of an organization. So, let’s dive into the importance of risk management and why it should never be overlooked.

First and foremost, risk management allows organizations to take a proactive approach rather than a reactive one. By identifying potential risks early on, project managers can devise strategies to mitigate or eliminate them. This not only saves time and resources but also helps to maintain project timelines and budgets.

One of the key reasons why risk management is vital is that it helps risk owners effectively communicate with stakeholders. When known risks are assessed, risk management leadership can provide stakeholders with realistic expectations regarding potential issues that may arise during the project’s lifecycle. This transparency fosters trust and credibility, as key stakeholders are informed about the project’s potential risks and how they will be handled.

A risk management plan also aids in decision-making processes. When organizations have a comprehensive understanding of potential risks, they can make informed decisions to address and minimize these risks. For example, if a risk assessment reveals a high potential impact on a specific business process, risk owners can allocate additional resources or adjust project timelines accordingly. This ensures that business process objectives are achieved, even in the face of adversity.

Furthermore, risk management promotes a proactive and collaborative approach with corporate executives and management teams. By involving team members in risk identification and analysis processes, organizations tap into the collective expertise and experience of their teams. This collaborative effort not only results in better risk identification but also fosters a sense of ownership and accountability among team members.

A risk management plan acts as a blueprint for the project team to follow. It provides a structured framework for risk identification, assessment, and response. Without a risk management plan, the organization would be left vulnerable to unexpected risks, leading to project delays, cost overruns, and overall project failure.

Finally, risk management is an iterative process. Throughout the risk management lifecycle, new types of risks may emerge, or the severity of existing risks may change. A robust risk management plan allows project managers to monitor and track risks continually, updating their risk register and response plans as needed. This adaptability ensures that the project remains on track, even when faced with unforeseen challenges.

Identifying Potential Risks

Now that we understand the importance of risk management, let’s dive into the first step of creating an effective risk management plan: identifying potential risks. This step is crucial because it sets the foundation for the entire risk management process.

To identify potential risks, risk owners can employ various techniques and tools. One popular method is brainstorming sessions. Gather your risk management team members, stakeholders, and subject matter experts in a room and encourage them to share any risks they can think of. By tapping into the collective knowledge and expertise of your team, you can identify risks that might have otherwise been overlooked.

Another helpful tool for identifying potential risks is using a risk management plan template . A risk management plan template provides a structured framework for capturing and categorizing potential risks. It prompts the risk management team to consider different aspects of the business process, such as technology, resources, and external factors, which can help uncover potential risks.

During the risk identification process, it’s important to think broadly and consider both internal and external factors that could negatively impact the organization’s security posture. Internal risks may include issues with team dynamics, resource availability, or technical limitations. External risks, on the other hand, may arise from factors beyond your control, such as regulatory changes, market fluctuations, or natural disasters.

Once potential risks have been identified, it’s important to document them in a risk register or a risk analysis tool. This record should include details about each risk, such as its description, likelihood of occurrence, potential impact, and risk owner. Assigning a risk owner is essential, as it ensures that someone takes responsibility for monitoring and managing each identified risk.

As risks are identified, they should also evaluate the severity of each risk. By evaluating risk severity, organizations can prioritize risks and allocate resources accordingly. The severity of risk can be determined by assessing the likelihood of occurrence and the potential impact it could have on the enterprise component. This evaluation allows the focus to be placed on high-severity risks first, ensuring that resources are used effectively.

It’s worth mentioning that the process of identifying potential risks should not be a one-time event. Throughout the project lifecycle, new risks may emerge, or the severity of existing risks may change. Therefore, risk identification should be an ongoing process, with regular risk monitoring and review.

Evaluating Risk Severity

Now that we have identified potential risks, it is crucial to evaluate their severity. Evaluating risk severity allows project managers to prioritize risks and allocate resources effectively. By understanding the potential impact and likelihood of each risk, risk management leadership can make informed decisions about which risks to address first.

To evaluate risk severity, risk owners should consider both the potential impact and the likelihood of occurrence. The potential impact refers to the magnitude of the consequences if a risk were to materialize. For example, financial risk management may reveal a risk that could result in a big financial loss or project failure, which has a greater potential impact than a risk with minor consequences. 

Likelihood of occurrence, on the other hand, refers to the probability that a risk will happen. This can be based on historical data, expert judgment, or statistical analysis. Risks that are more likely to occur pose a higher threat to the project and should be given greater attention.

To evaluate risk severity, organizations can use a risk assessment matrix. This matrix typically consists of a grid with severity levels ranging from low to high, and likelihood levels ranging from unlikely to almost certain. Each risk is then assessed and assigned a severity level based on its potential impact and likelihood of occurrence.

Once risks have been assigned severity levels, they can be prioritized, and then a risk response plan can be developed. The risk response plan outlines response strategies for mitigating, transferring, accepting, or avoiding each identified risk. By addressing high-severity risks first, risk owners can minimize their impact and decrease the chances of negative impact on the organization.

In addition to the risk response plan, organizations should also consider developing a contingency plan for high-severity risks. A contingency plan is a backup plan that outlines actions to be taken if a risk materializes. This plan helps companies to be prepared and minimizes the potential disruption caused by unexpected risk events.

It is important to note that risk severity evaluations should be revisited regularly throughout the project lifecycle. As new risks emerge or existing risks change, the severity levels may need to be adjusted. Regular review and evaluation of risk severity ensure that the risk management plan remains effective and up to date.

Developing a Risk Mitigation Plan

Developing a Risk Mitigation Plan is a crucial step in the risk management process. Once potential risks have been identified and their severity evaluated, it’s time to develop a plan to mitigate these risks and minimize their impact on the project. The goal of a risk mitigation plan is to put measures in place to reduce the likelihood of risks occurring and to decrease their potential impact.

To develop a risk mitigation plan, project managers should start by prioritizing the high-severity risks identified during the risk evaluation process. These are the risks that have the highest potential impact and are most likely to occur. By focusing on these risks first, resources can be effectively allocated and address the most critical threats to the company’s success.

Once high-severity risks have been identified, risk management team members can start brainstorming strategies to mitigate them. Several approaches can be taken, depending on the nature of the risk and the specific circumstances. Some common risk mitigation strategies include:

1. Risk Avoidance: In some cases, the best way to mitigate a risk is to avoid it altogether. This may involve making changes to the project plan, such as choosing a different technology or methodology that reduces the risk’s likelihood.

2. Risk Transfer: Sometimes, it’s possible to transfer the risk to another party. This could involve outsourcing certain aspects of the project to a third-party vendor or purchasing insurance to cover potential losses.

3. Risk Reduction: This strategy involves taking steps to reduce the likelihood or impact of a risk. For example, implementing strict quality control measures can reduce the risk of product defects, or conducting regular backup procedures can reduce the risk of data loss.

4. Risk Acceptance: In some cases, the potential impact of a risk may be low enough that it is acceptable to simply monitor the risk and take no further action. This strategy is often used for low-severity risks or risks that are outside of the organization’s control.

Once risk mitigation strategies have been identified, it’s important to document them in the risk response plan. The risk response plan outlines the specific actions that will be taken to mitigate each identified risk. It should include details such as who is responsible for implementing the strategy, the timeline for completion, and any associated costs.

Implementing and monitoring the project risk management plan are the next steps in the risk management process. Once the risk analysis and management plan has been developed, it’s important to put it into action and monitor its effectiveness. This involves tracking the progress of risk mitigation strategies, assessing their impact on the project, and making adjustments as needed.

Implementing and Monitoring the Plan

Once you have developed your risk mitigation plan, it’s time to put it into action and start implementing and monitoring your strategies. This is a crucial step in the risk management process as it allows you to track the progress of your risk mitigation efforts and make adjustments as needed.

To begin, ensure that your risk response plan is communicated clearly to all relevant team members. Each person responsible for implementing a specific risk mitigation strategy should understand their role and the timeline for completion. This promotes accountability and ensures that everyone is on the same page when it comes to managing project risks.

As you implement your risk mitigation strategies, it’s important to monitor their effectiveness. Regularly assess how well your strategies are working and whether they are effectively reducing the likelihood or impact of identified risks. This can be done through regular project meetings, check-ins, and progress reports. Additionally, establish key performance indicators (KPIs) or metrics to track the success of your risk mitigation efforts.

If you find that certain strategies are not achieving the desired results, be prepared to make adjustments. This might involve revisiting your risk response plan and identifying alternative strategies to address the risk. Flexibility and adaptability are key when it comes to managing project risks, so don’t be afraid to make changes if needed.

In addition to monitoring the effectiveness of your risk mitigation strategies, it’s important to regularly review and update your risk register. As new risks emerge or existing risks change, make sure to document them in your risk register and assess their potential impact. This ensures that your risk management plan remains current and reflects the evolving nature of your project.

Remember, risk management is an ongoing process, and monitoring your risk mitigation strategies is crucial to the success of your project. By regularly assessing the effectiveness of your strategies and making necessary adjustments, you can stay one step ahead of potential risks and increase the likelihood of project success.

Adapting and Improving Your Risk Management Strategy

Creating an effective risk management plan is a dynamic process that requires continuous adaptation and improvement. As your project progresses and new information becomes available, it’s essential to reassess your risk management strategies and make necessary adjustments. In this section, we’ll explore the importance of adapting and improving your risk management strategy and provide some tips for doing so effectively.

One of the first steps in adapting your risk management strategy is to regularly review and update your risk response plan. As you implement your risk mitigation strategies and monitor their effectiveness, you may discover that certain strategies are not achieving the desired results or that new risks have emerged. By revisiting your risk response plan and identifying alternative strategies, you can address these challenges head-on and increase the likelihood of project success.

In addition to updating your risk response plan, it’s crucial to regularly communicate with your project team and stakeholders about any changes or adjustments to the risk management strategy. This open and transparent communication ensures that everyone is on the same page and can adjust their plans and expectations accordingly. It also fosters a collaborative environment where team members feel empowered to provide feedback and suggest improvements.

Another important aspect of adapting your risk management strategy is to learn from past experiences. As your project progresses, take the time to reflect on any risks that have occurred and evaluate how well your risk mitigation strategies addressed them. Did the strategies effectively reduce the impact of the risks? Were there any unforeseen challenges or opportunities that arose? By reflecting on these experiences, you can identify areas for improvement and adjust your risk management strategy accordingly.

Continuous improvement is key to effective risk management. This means regularly seeking feedback from your project team and stakeholders, as well as staying updated on industry best practices and emerging risk management trends . Attend relevant conferences or webinars, read industry publications, and engage in discussions with other project managers to stay informed and gain new insights.

Risk management is an ongoing process that requires vigilance and adaptability. By regularly reviewing and updating your risk management strategy, communicating with your team and stakeholders, learning from past experiences, and staying informed, you can ensure that your project is well-positioned to minimize risks and maximize success.

In conclusion, an effective risk management strategy is crucial for project success. By understanding the importance of risk management, identifying potential risks, evaluating their severity, developing a risk mitigation plan, implementing and monitoring the plan, and adapting and improving your risk management strategy, you can minimize risks and increase the likelihood of project success.

Aaron Lancaster is a Manager of Partner Solutions at AuditBoard, where he serves as a product and industry expert to support AuditBoard’s alliance members. Aaron has more than 15 years of experience in internal audit, risk management, organizational controls, compliance, and business process improvement with primary focus on financial services. Connect with Aaron on LinkedIn .

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Managing Risks: A New Framework

• Robert S. Kaplan
• Anette Mikes

Risk management is too often treated as a compliance issue that can be solved by drawing up lots of rules and making sure that all employees follow them. Many such rules, of course, are sensible and do reduce some risks that could severely damage a company. But rules-based risk management will not diminish either the likelihood or the impact of a disaster such as Deepwater Horizon, just as it did not prevent the failure of many financial institutions during the 2007–2008 credit crisis.

In this article, Robert S. Kaplan and Anette Mikes present a categorization of risk that allows executives to understand the qualitative distinctions between the types of risks that organizations face. Preventable risks, arising from within the organization, are controllable and ought to be eliminated or avoided. Examples are the risks from employees’ and managers’ unauthorized, unethical, or inappropriate actions and the risks from breakdowns in routine operational processes. Strategy risks are those a company voluntarily assumes in order to generate superior returns from its strategy. External risks arise from events outside the company and are beyond its influence or control. Sources of these risks include natural and political disasters and major macroeconomic shifts. Risk events from any category can be fatal to a company’s strategy and even to its survival.

Companies should tailor their risk management processes to these different risk categories. A rules-based approach is effective for managing preventable risks, whereas strategy risks require a fundamentally different approach based on open and explicit risk discussions. To anticipate and mitigate the impact of major external risks, companies can call on tools such as war-gaming and scenario analysis.

Smart companies match their approach to the nature of the threats they face.

Editors’ note: Since this issue of HBR went to press, JP Morgan, whose risk management practices are highlighted in this article, revealed significant trading losses at one of its units. The authors provide their commentary on this turn of events in their contribution to HBR’s Insight Center on Managing Risky Behavior.

• Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development emeritus at Harvard Business School. He coauthored the McKinsey Award–winning HBR article “ Accounting for Climate Change ” (November–December 2021).
• Anette Mikes is a fellow at Hertford College, Oxford University, and an associate professor at Oxford’s Saïd Business School.

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How to Make a Risk Management Plan (Template Included)

You identify them, record them, monitor them and plan for them: risks are an inherent part of every project. Some project risks are bound to become problem areas—like executing a project over the holidays and having to plan the project timeline around them. But there are many risks within any given project that, without risk assessment and risk mitigation strategies, can come as unwelcome surprises to you and your project management team.

That’s where a risk management plan comes in—to help mitigate risks before they become problems. But first, what is project risk management ?

What Is Risk Management?

Risk management is an arm of project management that deals with managing potential project risks. Managing your risks is arguably one of the most important aspects of project management.

The risk management process has these main steps:

• Risk Identification: The first step to manage project risks is to identify them. You’ll need to use data sources such as information from past projects or subject matter experts’ opinions to estimate all the potential risks that can impact your project.
• Risk Assessment: Once you have identified your project risks, you’ll need to prioritize them by looking at their likelihood and level of impact.
• Risk Mitigation: Now it’s time to create a contingency plan with risk mitigation actions to manage your project risks. You also need to define which team members will be risk owners, responsible for monitoring and controlling risks.
• Risk Monitoring: Risks must be monitored throughout the project life cycle so that they can be controlled.

If one risk that’s passed your threshold has its conditions met, it can put your entire project plan in jeopardy. There isn’t usually just one risk per project, either; there are many risk categories that require assessment and discussion with your stakeholders.

That’s why risk management needs to be both a proactive and reactive process that is constant throughout the project life cycle. Now let’s define what a risk management plan is.

What Is a Risk Management Plan?

A risk management plan defines how your project’s risk management process will be executed. That includes the budget , tools and approaches that will be used to perform risk identification, assessment, mitigation and monitoring activities.

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Risk Management Plan Template

Use this free Risk Management Plan Template for Word to manage your projects better.

A risk management plan usually includes:

• Methodology: Define the tools and approaches that will be used to perform risk management activities such as risk assessment, risk analysis and risk mitigation strategies.
• Risk Register: A risk register is a chart where you can document all the risk identification information of your project.
• Risk Breakdown Structure: It’s a chart that allows you to identify risk categories and the hierarchical structure of project risks.
• Risk Assessment Matrix: A risk assessment matrix allows you to analyze the likelihood and the impact of project risks so you can prioritize them.
• Risk Response Plan: A risk response plan is a project management document that explains the risk mitigation strategies that will be employed to manage your project risks.
• Roles and responsibilities: The risk management team members have responsibilities as risk owners. They need to monitor project risks and supervise their risk response actions.
• Budget: Have a section where you identify the funds required to perform your risk management activities.
• Timing: Include a section to define the schedule for the risk management activities.

How to Make a Risk Management Plan

For every web design and development project, construction project or product design, there will be risks. That’s truly just the nature of project management. But that’s also why it’s always best to get ahead of them as much as possible by developing a risk management plan. The steps to make a risk management plan are outlined below.

1. Risk Identification

Risk identification occurs at the beginning of the project planning phase, as well as throughout the project life cycle. While many risks are considered “known risks,” others might require additional research to discover.

You can create a risk breakdown structure to identify all your project risks and classify them into risk categories. You can do this by interviewing all project stakeholders and industry experts. Many project risks can be divided up into risk categories, like technical or organizational, and listed out by specific sub-categories like technology, interfaces, performance, logistics, budget, etc. Additionally, create a risk register that you can share with everyone you interviewed for a centralized location of all known risks revealed during the identification phase.

You can conveniently create a risk register for your project using online project management software. For example, use the list view on ProjectManager to capture all project risks, add what level of priority they are and assign a team member to own identify and resolve them. Better than to-do list apps, you can attach files, tags and monitor progress. Track the percentage complete and even view your risks from the project menu. Keep risks from derailing your project by signing up for a free trial of ProjectManager.

2. Risk Assessment

In this next phase, you’ll review the qualitative and quantitative impact of the risk—like the likelihood of the risk occurring versus the impact it would have on your project—and map that out into a risk assessment matrix

First, you’ll do this by assigning the risk likelihood a score from low probability to high probability. Then, you’ll map out your risk impact from low to medium to high and assign each a score. This will give you an idea of how likely the risk is to impact the success of the project, as well as how urgent the response will need to be.

To make it efficient for all risk management team members and project stakeholders to understand the risk assessment matrix, assign an overall risk score by multiplying your impact level score with your risk probability score.

3. Create a Risk Response Plan

A risk response is the action plan that is taken to mitigate project risks when they occur. The risk response plan includes the risk mitigation strategies that you’ll execute to mitigate the impact of risks in your project. Doing this usually comes with a price—at the expense of your time, or your budget. So you’ll want to allocate resources, time and money for your risk management needs prior to creating your risk management plan.

4. Assign Risk Owners

Additionally, you’ll also want to assign a risk owner to each project risk. Those risk owners become accountable for monitoring the risks that are assigned to them and supervising the execution of the risk response if needed.

Related: Risk Tracking Template

When you create your risk register and risk assessment matrix, list out the risk owners, that way no one is confused as to who will need to implement the risk response strategies once the project risks occur, and each risk owner can take immediate action.

Be sure to record what the exact risk response is for each project risk with a risk register and have your risk response plan it approved by all stakeholders before implementation. That way you can have a record of the issue and the resolution to review once the entire project is finalized.

5. Understand Your Triggers

This can happen with or without a risk already having impacted your project—especially during project milestones as a means of reviewing project progress. If they have, consider reclassifying those existing risks.

Even if those triggers haven’t been met, it’s best to come up with a backup plan as the project progresses—maybe the conditions for a certain risk won’t exist after a certain point has been reached in the project.

6. Make a Backup Plan

Consider your risk register and risk assessment matrix a living document. Your project risks can change in classification at any point during your project, and because of that, it’s important you come up with a contingency plan as part of your process.

Contingency planning includes discovering new risks during project milestones and reevaluating existing risks to see if any conditions for those risks have been met. Any reclassification of a risk means adjusting your contingency plan just a little bit.

7. Measure Your Risk Threshold

Measuring your risk threshold is all about discovering which risk is too high and consulting with your project stakeholders to consider whether or not it’s worth it to continue the project—worth it whether in time, money or scope .

Here’s how the risk threshold is typically determined: consider your risks that have a score of “very high”, or more than a few “high” scores, and consult with your leadership team and project stakeholders to determine if the project itself may be at risk of failure. Project risks that require additional consultation are risks that have passed the risk threshold.

To keep a close eye on risk as they raise issues in your project, use project management software. ProjectManager has real-time dashboards that are embedded in our tool, unlike other software where you have to build them yourself. We automatically calculate the health of your project, checking if you’re on time or running behind. Get a high-level view of how much you’re spending, progress and more. The quicker you identify risk, the faster you can resolve it.

Free Risk Management Plan Template

This free risk management plan template will help you prepare your team for any risks inherent in your project. This Word document includes sections for your risk management methodology, risk register, risk breakdown structure and more. It’s so thorough, you’re sure to be ready for whatever comes your way. Download your template today.

Best Practices for Maintaining Your Risk Management Plan

Risk management plans only fail in a few ways: incrementally because of insufficient budget, via modeling errors or by ignoring your risks outright.

Your risk management plan is one that is constantly evolving throughout the course of the project life cycle, from beginning to end. So the best practices are to focus on the monitoring phase of the risk management plan. Continue to evaluate and reevaluate your risks and their scores, and address risks at every project milestone.

Project dashboards and other risk tracking features can be a lifesaver when it comes to maintaining your risk management plan. Watch the video below to see just how important project management dashboards, live data and project reports can be when it comes to keeping your projects on track and on budget.

In addition to your routine risk monitoring, at each milestone, conduct another round of interviews with the same checklist you used at the beginning of the project, and re-interview project stakeholders, risk management team members, customers (if applicable) and industry experts.

Record their answers, adjust your risk register and risk assessment matrix if necessary, and report all relevant updates of your risk management plan to key project stakeholders. This process and level of transparency will help you to identify any new risks to be assessed and will let you know if any previous risks have expired.

How ProjectManager Can Help With Your Risk Management Plan

A risk management plan is only as good as the risk management features you have to implement and track them. ProjectManager is online project management software that lets you view risks directly in the project menu. You can tag risks as open or closed and even make a risk matrix directly in the software. You get visibility into risks and can track them in real time, sharing and viewing the risk history.

Tracking & Monitor Risks in Real Time

Managing risk is only the start. You must also monitor risk and track it from the point that you first identified it. Real-time dashboards give you a high-level view of slippage, workload, cost and more. Customizable reports can be shared with stakeholders and filtered to show only what they need to see. Risk tracking has never been easier.

Risks are bound to happen no matter the project. But if you have the right tools to better navigate the risk management planning process, you can better mitigate errors. ProjectManager is online project management software that updates in real time, giving you all the latest information on your risks, issues and changes. Start a free 30-day trial and start managing your risks better.

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Risk Management Planning: Definition, Process, and Types

Risk Management Planning (Image by Entrepreneur Handbook)

Risk management planning is a proactive strategy essential for anticipating and addressing potential challenges before they escalate. 

This method is critical in diminishing uncertainties that could affect the success of projects or business operations. 

Let’s say you’re launching a new product, confident in your research and excited about the market. 

But what if a competitor swoops in? Or what if an unexpected supply chain disruption throws your schedule off? Such situations underline the importance of risk management planning. 

Risk management planning involves identifying potential risks, assessing their likelihood and impact, and then developing strategies to mitigate or manage them. 

In the business context, this planning is instrumental for making well-informed decisions. 

It allows companies to navigate through uncertainties with greater confidence and stability, turning potential problems into manageable situations. 

For IT projects, where adhering to timelines and budgets is crucial, risk management planning takes on additional significance. 

Projects can stay on track when unexpected challenges arise by anticipating potential setbacks and having strategies in place. 

This article below aims to provide a comprehensive understanding of IT risk management planning. 

The goal is to offer valuable insights that can be practically applied in your organization’s risk management strategies. 

We hope this knowledge will help you make your projects and business operations more resilient and adaptable to change. 

Definition of Risk Management Planning

Risk management planning is a strategic process aimed at identifying, assessing, and mitigating risks in business and IT environments. 

Strong risk management planning is a crucial factor in preventing risk management failures . It’s about being proactive rather than reactive, ensuring that risks are managed before they become problematic. 

Risk management planning involves three key steps. First, it’s about spotting potential risks – these could be anything from market fluctuations to IT system failures. 

The second step is assessing these risks. This means understanding how likely they are to happen and what impact they could have. 

Finally, it’s about taking action – developing strategies to either reduce these risks or manage their impact effectively. 

Risk management planning helps companies navigate through uncertainties, making sure that they are not caught off guard. 

Due to the fast changing nature of technology and the increasing threat of cyber-attacks, IT projects require extra vigilance. 

Implementing risk management planning guarantees that projects remain on track, within budget, and, most importantly, secure. 

Key Components of Risk Management Planning

Risk management planning is a systematic approach that involves several essential components. 

These components work together to ensure an organization can effectively anticipate, understand, and manage risks. 

Let’s break down the key tools that keep your project or business running smoothly. 

First up is risk identification. This is about being alert and aware, pinpointing potential risks that could impact your organization. 

Brainstorm every possible risk, from a tech outage to a competitor’s sneaky launch. No stone (or server) should be left unturned!. 

Next is risk assessment. Here, you’re evaluating the identified risks to understand how likely they are to happen and what impact they could have. 

Not all risks are created equal. You analyze each one, figuring out how likely it is to happen and how much damage it could do. 

Then comes risk mitigation. This step is all about strategy. You’re developing plans to either reduce the likelihood of these risks or minimize their impact if they do happen. 

Yes, you must develop strategies to avoid, minimize, or respond to those risks. Think of it as having a Plan B (and maybe even a Plan C) ready to go if things get hairy. 

Keep in mind that risks can be difficult to detect, therefore monitoring is crucial. This ongoing process involves keeping an eye on the risk landscape and the effectiveness of your mitigation strategies. 

You must track their likelihood and impact, ready to adjust our defenses as needed. 

Finally, communication is critical. Effective risk management requires clear and continuous communication within the organization. 

Share the plan with all involved stakeholders to keep them informed and prepared. 

Importance of Risk Management Planning

Why is Risk management planning so important? Well, in the dynamic world of business and IT, risks are like uncharted waters. 

A robust risk management plan helps navigate these waters, ensuring that potential issues are identified and managed before they escalate into major problems. 

One of the key benefits is improved decision-making. With a clear understanding of potential risks, business can make more informed choices, balancing opportunities against possible pitfalls. 

Identifying and assessing potential risks allows for informed decision-making based on facts rather than intuition. 

For IT projects, risk management planning is about anticipating and preparing for obstacles to ensure that projects stay on track, within budget, and complete successfully. 

Moreover, risk management planning contributes significantly to organizational resilience. It builds a culture of preparedness, where teams are not just reacting to crises, but are proactively managing potential threats. 

This forward-thinking approach fosters an environment of agility and adaptability, enabling organizations to withstand and even thrive amidst challenges. 

Types of Risks Covered in Risk Management Planning

There are many different types of risks faced by businesses. These risks can broadly be categorized into strategic, operational, financial, and compliance risks. 

Each category has its unique challenges and requires specific strategies to manage. Let’s investigate some of the most common troublemakers to keep an eye out for. 

First, we have strategic risks. These are big-picture risks related to the overall direction and goals of the organization. 

Strategic risks involve missed opportunities, changing market trends, or even new competitors throwing wrenches in your plans. 

A good plan helps you navigate these twists and turns, keeping your city (business) on the path to success. 

Operational risks are more about the day-to-day functioning of the business. These include risks from internal processes, people, and systems. 

Having a plan ensures you have detours and repair crews ready to keep your city (business) running smoothly. 

Financial risks deal with the financial aspects of the organization. They include market fluctuations, credit risks, and liquidity issues. 

Therefore, it is important to have a solid financial foundation to manage these risks. A strong plan helps you build financial resilience, weather those storms, and protect your city’s (business) prosperity. 

Compliance risks are linked to legal and regulatory requirements. Every industry has its regulations, and failing to comply can lead to legal consequences and damage to reputation. 

Staying up-to-date with these regulations and integrating them into business practices is essential. 

Please note, each type of risk requires a tailored approach to manage effectively. 

Businesses can not only protect themselves, but position themselves for growth and success by understanding and preparing for these risks. 

Benefits of Effective Risk Management Planning

Effective risk management planning brings tangible benefits that can transform how an organization operates and is perceived. But what are the tangible benefits this planning brings? 

Firstly, enhanced decision-making is a significant benefit. Instead of stumbling in the dark, risk management equips you with a floodlight, illuminating potential dangers. 

You can make informed decisions based on facts, not gut feelings, avoiding costly missteps and maximizing opportunities. 

Stakeholder confidence is another key advantage. Investors, clients, and team members gain trust when they see a well-managed approach to risk. 

You build trust and confidence with investors, employees, and customers, creating a calmer and more productive environment. 

They know you’re prepared, and that breeds positive vibes all around. 

Project success is closely tied to effective risk management. By getting ahead of potential roadblocks such as budget cuts or software glitches, you’ll be prepared to navigate around them with grace. 

No more panic over delays or derailed schedules. Your projects finish smoothly, boosting efficiency and morale. 

Risk management planning also encourages innovation and drives your business forward. A well-managed risk environment fosters a culture that encourages calculated risk-taking. 

You’re not paralyzed by fear, but empowered to explore new ventures and ideas, knowing there’s a safety net to catch you if you stumble. 

The good news is risk management planning is also an investment in your brand image that pays big dividends. How? 

Proactively addressing potential compliance or ethical concerns shows the world that you care. 

You build a stronger reputation for responsibility and transparency, attracting loyal customers and top talent. 

Common Challenges and How to Overcome Them

So you’ve embarked on the noble quest of risk management planning – fantastic! But hold your horses, every adventurer encounters hurdles. 

One common challenge is underestimating risks. Sometimes, risks might seem distant or unlikely, leading to inadequate preparation. 

To overcome this, it’s important to conduct thorough risk assessments and consider even low-probability events. 

Another challenge is the rapidly changing risk landscape, especially in tech-driven industries. 

To keep up, your business must regularly update its risk management plans. Staying current ensures that you’re always on the right track. 

A lack of clear communication can also hinder effective risk management. It’s essential for everyone in the organization to understand the risks and the strategies in place to manage them. 

Clear, consistent communication is like a well-marked map – it helps everyone stay on course and move in the same direction. 

Resource constraints often pose a challenge. Not all organizations have the luxury of extensive resources to dedicate to risk management. 

The key here is to prioritize. Focus on the risks with the highest impact and likelihood, ensuring the most critical areas are covered. 

Finally, ensuring stakeholder buy-in can be tricky. So, it’s important to demonstrate the value of risk management to all stakeholders. 

Show them it’s not just about avoiding problems, but about enabling smoother, more successful operations. 

With thorough assessment, regular updates, clear communication, strategic resource allocation, and stakeholder engagement, these challenges can be effectively managed. 

Best Practices in Risk Management Planning

Best practices in risk management planning include working across the organization, regularly updating risk assessments, fostering a risk-aware culture, maintaining clear communication, and having solid contingency plans in place. 

The practices outlined below illustrate how to ensure your business is prepared to face uncertainty, making it more resilient and adaptable. 

A key practice is to involve all levels of the organization. Risk management shouldn’t be confined to top executives or a specific department. 

Brainstorming with diverse perspectives uncovers hidden threats and boosts ownership. 

Regular risk assessments ensure that your strategies are current and effective. Please remember, not all risks are created equal. Focus on the high-impact, high-likelihood ones first. 

Another best practice is integrating risk management into the organizational culture. This means making risk awareness part of the daily conversation. 

So, be sure that your fancy document isn’t enough. Build a practical response plan for each risk, complete with clear roles and responsibilities. Think of it as an “if-then” playbook for any unexpected storm. 

That’s why, never leave your team in the dark. Communicate the plan clearly and regularly, keeping everyone informed and engaged. 

Finally, contingency planning is a must. It’s not enough to identify and assess risks; you need actionable plans to address them if they occur. 

Technology and Tools in Risk Management Planning

Technology and tools in risk management planning offer a multitude of benefits.  They give you insights, ramp up accuracy, keep an eye on things in real time, and make teamwork a breeze.

Take Cisco, for example. It’s a shield against the digital dangers of network breaches, cyber-attacks, and uninvited guests, keeping your network’s integrity rock solid. 

Then there’s Microsoft Azure, your security framework in the cloud. It’s got your back with disaster recovery and backup solutions, ensuring your data stays safe and sound, even when things go south. 

Don’t forget Azure’s knack for spotting risks with its sharp analytics tools. It’s like having an eagle eye on your systems and operations. 

And there’s Microsoft 365 and SharePoint, the dynamic duo for team collaboration. They keep your documents in check and follow the rules of data governance and compliance like a boss. 

AvePoint jumps into the mix, offering a protective umbrella over your data, especially in Microsoft 365 and SharePoint environments. 

If that’s not enough, Datto’s got your back with its cloud-based backup and recovery. 

Datto’s is practically a protection tool for your data against the unforeseen, such as hardware hiccups, cyber nightmares, or natural disasters. 

Then there’s Backupify, locking down your critical business data, especially for cloud favorites like Google Workspace and Microsoft 365. 

AWS steps up with a toolbox full of cloud services, including top-notch security, compliance solutions, and data encryption. It’s your guard against risks in data security and regulatory compliance. 

CrowdStrike? It’s like having a digital bodyguard. It watches out for cyber threats and keeps your IT systems intact. 

Sophos offers a crystal ball of advanced threat intelligence, helping you stay two steps ahead of security risks. 

And don’t overlook Proofpoint. It’s your watchtower against email threats like phishing and malware. 

All these tech giants bring something unique to the table in managing risks, from network security to data management, compliance, and cybersecurity. 

But remember, these tools are just a part of the vast arsenal available for your enterprise risk management planning.

Each one adds a layer of protection and insight, helping you navigate the complex world of risk management with confidence. 

In our deep dive into risk management planning, we’ve uncovered its undeniable importance for businesses and IT projects. 

We’ve seen how various risks, like strategic, operational, financial, and compliance, demand a nuanced approach. 

Each type of risk poses unique challenges, but with a well-crafted risk management plan, these can be effectively navigated. 

And still remember, challenges in risk management are inevitable, but they’re not insurmountable. 

Regular assessments, clear communication, prioritizing resources, and stakeholder engagement are key to overcoming these challenges. 

That’s why the role of technology and tools in risk management cannot be overstated. They can help you identify, analyze, and mitigate risks, ensure data security, and improve overall resilience. 

Tools like Cisco, Microsoft Azure, Microsoft 365, SharePoint, AvePoint, Datto, Backupify, AWS, CrowdStrike, Proofpoint, and Sophos offer specialized capabilities. 

So what’s the takeaway? Simply put, risk management planning is a must. Because this planning equips your business to grow in an unpredictable world. 

Your company should not only have a risk management plan in place, but should continually strengthen it with the right tools and best practices. 

In doing so, you will build a resilient, proactive, and secure environment that is ready to meet the challenges that lie ahead.

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Discover ways to minimize and manage risk for your small business, including a tight cybersecurity policy and creating a risk management team.

As a business owner, decision-making is your responsibility. While some decisions are straightforward, others, like investing in technology or bringing on an investor, require more time and thought. It's crucial to have effective processes in place for making these high-risk decisions, ensuring a smoothly functioning business.

Here are six strategies to successfully manage and minimize risks in your small business.

Monitor your cash flow closely

Issues with cash flow management don’t pop up out of the blue; they originate from long-term mismanagement or the business owners’ attention being on other priorities. Keeping a close eye on your cash flow ensures you’re abreast of your financial situation and enables you to analyze issues and mitigate potential pitfalls if income streams disappear.

For many business owners, spending hours in the books isn’t feasible with the litany of other responsibilities on their plate — and that’s OK. However, if you’re unable to take stock monthly of your financial situation and monitor cash flow yourself, it’s time to find a reliable accountant. Your accountant can take responsibility for bookkeeping, cash flow management, payroll, and even your small business’s taxes when the time comes.

[Read more: How to Create a Cash Flow Statement to Keep Track of Your Business Finances ]

Establish a cybersecurity policy

Many small businesses often believe they won’t be the target of cyberattacks, resulting in a majority of small businesses ( 51% ) failing to have a digital defense plan in place to protect their customers and intellectual property.

Significant business is done over the web in today’s landscape, and small businesses should establish a cybersecurity policy to protect themselves and their customers’ data. Consider consulting with a data privacy professional to understand the needs of your infrastructure and hit baseline necessities, like password management and a process for updating software. Mitigate the risk cyberattacks pose by developing an airtight security policy.

[Read more: Newly Remote Workforce? Take These 4 Cybersecurity Steps Now ]

One major way to track your online reputation as a business is to read and respond to every review your business gets.

Create a risk management plan and team

Whether you’re able to use in-house employees or hire an outside firm, creating a risk management team affords your business the advantage of having processes in place. Instead of scrambling for answers when a risk goes awry, your team has adequate training to assess the situation, minimize the damage, and take action based on their skill sets.

Relying on an outside firm might cost more capital than an in-house team, but they’ll bring deep knowledge and experience to the table — mapping out risks, implementing strategies for recovery , and lending support if and when it’s needed because it is their only job function.

[Read more: 4 Simple and Easy-to-Deploy Ways to Protect Your Company Data ]

Implement proper insurance coverage and risk transfer

Assessing your insurance needs and liability ensures you’re covered in the event a risk goes wrong. You can further reduce the risks of having significant payouts by buying more coverage or additional insurance plans. At the very least, ensure your insurance covers any inventory, employees, equipment, and miscellaneous property or vehicles.

Avoid long-term commitments

Long-term financial commitments may seem like a good idea at first, but they can decimate your cash on hand after a bad month or two.

Try to stay away from long-term financial commitments like company car leases or hefty mortgages to minimize the risk of your small business. Instead, opt for smaller, bite-sized payments you can handle while continuing to get your business up and running. Consider renting a storefront or having a virtual office rather than buying office space. If your employees drive a lot, organize an easy gas mileage reimbursement program rather than buying a fleet of company cars.

Track your online reputation

The vast majority of consumers trust online reviews as much as personal recommendations, according to BrightLocal . As such, small businesses have the opportunity to attract more customers and build deeper loyalty by curating a transparent online presence. From reviews to ratings to user-generated content, keeping an eye on what people say about your business online has never been more accessible — or more overwhelming.

One major way to track your online reputation as a business is to read and respond to every review your business gets. These responses should remain professional and in the voice of your brand. Because they’re public, reviewing responses on search engines and social media offers potential customers a window into how you do business.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here .

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Enterprise risk management and business continuity management: Together at last

Organizations that integrate enterprise risk management (ERM) into their strategic planning efforts have found that business continuity management (BCM) enhances both their value creation objectives and their protection objectives. The confidence that comes from identifying and appropriately addressing interruption risks enables them to more boldly execute those strategic plans. But to gain that confidence requires the melding of ERM and BCM programs.

Download Enterprise risk management and business continuity management: Together at last

Executing a series of well-coordinated erm and bcm integration activities makes it possible to realize the full value of optimized business continuity management.

Leading-practice integration examples include:

• Consider ERM and BCM program integration
• Involve BCM management in the ERM risk assessment process
• Involve ERM management in BCM interruption risk assessment planning and analysis
• Perform a BCM business impact analysis (BIA) that is informed by the ERM program’s impact categories, weighting, and thresholds
• Develop ERM-informed risk resiliency improvement recommendations
• Enhance risk scenario analysis
• Conduct BCM capability examination and post-incident analysis
• Link BCM and ERM program effectiveness reporting
• Leverage governance, risk management, and compliance (GRC) technology

ERM lifecycle and BCM lifecycle synergies

Program governance, risk assessment/business impact analysis (bia), risk treatments/strategies, risk plans/business continuity plans, program effectiveness monitoring and reporting.

• ERM and BCM program governance is tightly coupled, sharing many of the same stakeholders 
• The ERM and BCM program owner can be the same individual, yet supported by separate administrative teams 
• The ERM and BCM programs report to the same risk committee and/or board of directors 
• ERM and BCM risk assessment scopes align for areas related to operational interruption risks 
• ERM risk impact categories and their thresholds are used to standardize the way BCM BIA participants describe operational interruption impacts 
• Management’s risk appetite and tolerance decisions are informed by BIA results 
• Deciding whether and how to respond to interruption risks is based on management’s risk tolerance and risk appetite 
• Resiliency improvements are made to areas that leadership identifies as critical to achieving operational and strategic goals
• Approved strategies for responding to interruption risk are documented in actionable business continuity plans
• Responses to actual interruption events and the results of business continuity and crisis management exercises are formally evaluated against risk reduction objectives 
• The BCM program’s effectiveness analysis provides a feedback loop to the overall ERM program, thereby providing comfort that resiliency and recoverability efforts reduce interruption risk impact

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What Is Project Risk Management?

Updated: March 11, 2024

Published: February 12, 2023

Growing your business by launching products or taking on new clients can be exciting, but it can also be risky . Growth involves expansion into higher workloads, and it often requires stepping into new territories. 

You can’t eliminate risk from your business. But you can take steps to better understand and manage the risks associated with new business undertakings. 

Known as project risk management, adequately planning for and mitigating risks that may arise from new proposals will set your company up for long-term success.  

Definition of project risk management

Project risk management is the process of identifying, anticipating, mitigating, preventing, and responding to potential risk events that may occur during a project. Project risk refers to anything in the project that doesn’t go as planned.

One key thing to note about project risk management is that it’s not all about prevention. Instead, it’s about acknowledging that things don’t always go as planned and preparing risk mitigation strategies.

Risk vs. issues in project management

Business projects can have risks and issues . While the two terms may sound interchangeable, they’re not. 

The key difference between a risk and an issue is timing. A risk is a potential event that could happen in the future. In contrast, an issue has already happened. 

Analyzing projects for potential risks at the beginning can help you prevent them from becoming issues. 

You can be better prepared for issues when you include risk management in your project plan. Since you’ve anticipated the problem, you can craft your plan of action ahead of time and respond more quickly. 

Types of project risk management

There are several ways to approach risk management depending on the lens that you look through. Here are the most common approaches to managing various types of business risk .

Financial risk management

In financial risk management , you analyze and plan for budget risks. These risks include rising project costs, a lower-than-expected budget, or low revenue.

External risk management

In external risk management, you analyze and plan for external events that could affect the project. Examples include new regulations, emergencies, weather events, supply chain issues, and market events.

Performance risk management

In performance risk management, you identify and plan for events that can affect performance. These events could include poorly defined KPIs, outdated research, scope creep , missed deadlines, and underperforming employees .

Schedule risk management

In schedule risk management, you identify and plan for risk events that can affect the timeline of the entire project. These risks include certain tasks taking longer than expected, waiting on deliverables, supply-side delays, and shortened deadlines.

Operational risk management

In operational risk management, you analyze and plan for risks that come from organizational operations. Examples include personnel changes, technology changes, and company restructuring.

Examples of project risk management 

People tend to associate the word “risk” with a negative impact. But in project risk management, the term applies to anything that doesn’t go as planned. In other words, it also includes events that can positively affect your project.

Positive risk examples in project management

Positive risk refers to unplanned events that benefit your project. For example, you could complete the project early, spend less than expected, or acquire more customers than projected. 

At this point, you might wonder, “If positive risk benefits my business, why do I have to manage it?”

A positive risk management strategy lets you capitalize on unexpected benefits. For example, say you launch a new ad campaign and expect it to increase traffic to your online store by 20%. Instead, it goes viral and generates a traffic boost of 200%. 

While this is a great result, your website needs to be able to handle the spike in traffic. Using positive risk management, you can plan ahead to ensure a great user experience if your website gets an unprecedented amount of visits.

Negative risk examples in project management 

On the other hand, negative risk means that the unplanned event has a detrimental effect on your project. For example, you could go past your deadline, surpass your budget, or have a supplier shut down in the middle of the project.

The goals of negative risk management are to avoid the risks you can and contain the impact of risks that turn into issues.

For instance, say you identified supplier loss as a possible risk. To manage this risk, you could work with multiple suppliers from the beginning. Or you could have a backup ready in case a supplier shuts down or encounters delays.

Project risk management planning: Seven steps

1. identify possible risk events.

The first step in the planning process is to identify possible risk events before the project starts. This is sometimes referred to as conducting a “premortem.” 

Ryan Renteria, executive coach and founder of Stretch Five, explains that teams should “imagine a future where the project has failed and ask, ‘What are the most likely reasons it failed?’”

For best results, create a meeting environment where people feel rewarded for speaking up about concerns. You want your subject-matter experts to feel comfortable giving honest opinions.

Kristin Chester, founder and creative director of luxury magazine Marquet Media , recommends that you look at your internal dynamics and consider how your strengths and weaknesses may affect a project.

Specifically, you want to consider the impact of risk events on your timeline, budget , deliverable quality, and end results.

2. Prepare risk analysis and contingency plans

After the brainstorming session, it’s time for risk assessment. Determine the likelihood of each risk event happening, the estimated impact size, and a potential response plan. 

Information from past projects can help your team predict risk probability and impact.

Remember that you don’t need to act on response plans immediately. They’re contingencies in case the risk event happens.

3. Prioritize the risk

At this point, you can use your risk analysis to prioritize the risks you identified. 

The priority level of a risk helps you decide how many resources you’ll put toward a response should the event occur. 

This helps you set priorities while looking at the big picture. This way, you can understand which risks deserve more attention and which you can reasonably tolerate.

4. Assign a risk owner

Before the project begins, you want to assign a risk owner to each risk. This person monitors the risk , communicates concerns with the team, and implements the response plan if the risk occurs. 

Travis Lindemoen, managing director of staffing firm nexus IT group, recommends that you choose the “person on the project team who is best equipped to manage and keep an eye on a given risk.”

For instance, someone on your development team might be most appropriate to deal with a risk involving website bandwidth or performance.

Assigning owners ahead of time means risk monitoring is less likely to fall through the cracks. Also, you’ll have a better chance of successfully implementing a risk response plan .

5. Monitor risks and communicate project tracking

Once the project has begun, risk owners should monitor their assigned risk events. They can inform other project team members if a risk appears on the horizon. 

For example, someone tracking a project timeline may alert the team if they have missed intermediate milestones. 

Open communication with project stakeholders (including clients) can help you manage expectations and even avoid miscommunication-related risks. 

Carl Jensen, management consultant and founder of Compare Banks, recommends that project managers “leverage regular conferencing with customers so you can incorporate feedback as you go instead of having to redo work later.”

6. Respond to risk events

It’s not always possible to eliminate risk, even when you take the time to plan. If risk events occur, you’ll need to implement your contingency plans. 

Risk owners should communicate the details of a risk event to key stakeholders. Then, owners should follow the appropriate plan and continue monitoring the risk. In some cases, the ability to respond quickly can reduce the impact of a risk event.

7. Assess your risk management plan

After the project life cycle is complete, you have a lot of information that can help you understand the effectiveness of your risk management plan. 

Ask yourself questions like:

• Did we predict all the risks that occurred?
• How accurate was our risk analysis in terms of the likelihood and severity of the impact?
• Did our risk monitoring let us avoid or limit a risk?
• How well did we implement response plans?
• Did our response plans limit the impact?
• How can we improve our project risk management processes?

Much of project risk management relies on projections, assumptions, and subjective analyses. In other words, it depends on imperfect data. But you can improve your project management skills by looking back to see what you’ve done well and where you can improve.

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Investment Project Risk Identification and Evaluation

• E. P. Morgunova 4  
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Part of the book series: Smart Innovation, Systems and Technologies ((SIST,volume 138))

The activities of each company are subject to a wide range of risks, as the market environment is characterized by a high degree of uncertainty and a probabilistic nature. The existence of risks contributes to an intensive economy development, which is due to correlation between the risk level and the scope of expected results. Each project features certain risks; therefore, while implementing any project, there is a need to manage its risks. The paper presents the investigation results of risk identification and assessment for an investment project based on an example of project implementation in the coal-mining sector. The Russian coal industry is one of the most important areas of economic activities, despite the deep decline in the coal industry worldwide over the past decade. Therefore, the main issues and ways of minimizing project risks in the coal mining industry, that are discussed in this paper, are still relevant. The formed comprehensive and holistic mechanism for understanding issues related to investment project risks can be used in practical activities of various companies that implement investment projects.

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How generative AI can help banks manage risk and compliance

Generative AI (gen AI) is poised to become a catalyst for the next wave of productivity gains  across industries, with financial services very much among them. From modeling analytics to automating manual tasks to synthesizing unstructured content, the technology is already changing how banking functions operate, including how financial institutions manage risks and stay compliant with regulations.

It’s imperative for risk and compliance functions to put guardrails around gen AI’s use in an organization. However, the tech can help the functions themselves improve efficiency and effectiveness. In this article, we discuss how banks can build a flexible, powerful approach to using gen AI in risk and compliance management and identify some crucial topics that function leaders should consider.

Seizing the promise of gen AI

Gen AI has the potential to revolutionize the way that banks manage risks over the next three to five years. It could allow functions to move away from task-oriented activities toward partnering with business lines on strategic risk prevention and having controls at the outset in new customer journeys, often referred to as a “ shift left ”  approach . That, in turn, would free up risk professionals to advise businesses on new product development and strategic business decisions, explore emerging risk trends and scenarios, strengthen resilience, and improve risk and control processes proactively.

These advances could lead to the creation of AI- and gen-AI-powered risk intelligence centers that serve all lines of defense  (LODs): business and operations, the compliance and risk functions, and audits. Such a center would provide automated reporting, improved risk transparency, higher efficiency in risk-related decision making, and partial automation in drafting and updating policies and procedures to reflect changing regulatory requirements. It would act as a reliable and efficient source of information, enabling risk managers to make informed decisions swiftly and accurately.

For instance, McKinsey has developed a  gen AI virtual expert  that can provide tailored answers based on the firm’s proprietary information and assets. Banks’ risk functions and their stakeholders can develop similar tools that scan transactions with other banks, potential red flags, market news, asset prices, and more to influence risk decisions. These virtual experts can also collect data and evaluate climate risk assessments to answer counterparty questions.

Finally, gen AI could facilitate better coordination between the first and second LODs in the organization while maintaining the governance structure across all three. The improved coordination would enable enhanced monitoring and control mechanisms, thereby strengthening the organization’s risk management framework.

Emerging applications of gen AI in risk and compliance

Of the many promising applications of gen AI for financial institutions, there’s a set of candidates that banks are exploring for a first wave of adoption: regulatory compliance, financial crime, credit risk, modeling and data analytics, cyber risk, and climate risk. Overall, we see applications of gen AI across risk and compliance functions through three use case archetypes.

Through a virtual expert , a user can ask a question and receive a generated summary answer that’s built from long-form documents and unstructured data. With manual process automation , gen AI performs time-consuming tasks. With code acceleration , gen AI updates or translates old code or writes entirely new code. All these archetypes can have roles in the key responsibilities of risk and compliance:

• Regulatory compliance . Enterprises are using gen AI as a virtual regulatory and policy expert by training it to answer questions about regulations, company policies, and guidelines. The tech can also compare policies, regulations, and operating procedures. As a code accelerator, it can check code for compliance misalignment and gaps. It can automate checking of regulatory compliance and provide alerts for potential breaches.
• Financial crime . Gen AI can generate suspicious-activity reports based on customer and transaction information. It can also automate the creation and update of customers’ risk ratings based on changes in know-your-customer attributes. By generating and improving code to detect suspicious activity and analyze transactions, the tech can improve transaction monitoring.
• Credit risk . By summarizing customer information (for example, transactions with other banks) to inform credit decisions, gen AI can help accelerate banks’ end-to-end credit process. Following a credit decision, it can draft the credit memo and contract. Financial institutions are using the tech to generate credit risk reports and extract customer insights from credit memos. Gen AI can generate code to source and analyze credit data to gain a view into customers’ risk profiles and generate default and loss probability estimates through models.
• Modeling and data analytics . Gen AI can accelerate the migration of legacy programming languages, such as the switch from SAS and COBOL to Python. It can also automate the monitoring of model performance and generate alerts if metrics fall outside tolerance levels. Companies are also using gen AI to draft model documentation and validation reports.
• Cyber risk . By checking cybersecurity vulnerabilities, gen AI can use natural language to generate code for detection rules and accelerate secure code development. It can be useful in “red teaming” (simulating adversarial strategies and testing attack scenarios). The tech can also serve as a virtual expert for investigating security data. It can make risk detection smarter by speeding and aggregating security insights and trends from security events and behavior anomalies.
• Climate risk . As a code accelerator, gen AI can suggest code snippets, facilitate unit testing, and assist physical-risk visualization with high-resolution maps. It can automate data collection for counterparty transition risk assessments and generate early-warning signals based on trigger events. As a virtual expert, gen AI can automatically generate reports on environmental, social, and governance (ESG) topics and sustainability sections of annual reports (see sidebar, “How generative AI can speed financial institutions’ climate risk assessments”).

How generative AI can speed financial institutions’ climate risk assessments

Risk functions can benefit from generative AI (gen AI) across a variety of analyses. In the case of climate risk assessments, the technology—via tools based on generative pretrained transformers—can instantaneously draw from multiple, lengthy reports and distill answers from source materials (exhibit).

In addition, gen AI can provide support to relationship managers to accelerate the assessment of climate risk for their counterparties. It can automatically generate syntheses of counterparty transition plans and compare them against actual emissions to evaluate progress toward goals.

Beyond measurement, gen AI can aid climate impact analysis by ultimately automating reporting on environmental, social, and governance topics. It can aid risk by automating climate risk drafts, and it can spur growth by using customer data to personalize green financial products.

Consider the benefits of gen AI automation in helping customers move to net zero. The tech can identify market trends and environmental impact from years of company reports. In turn, financial institutions can use that new information to find investment opportunities.

Once companies have embedded gen AI in these roles and functions, they have seen a second wave of emerging use cases across other aspects of risk management. Gen AI can streamline enterprise risk by synthesizing enterprise-risk-management summaries from existing data and reports. It can help accelerate the internal capital adequacy assessment process and model capital adequacy by sourcing relevant data. Banks can also use it to summarize risk positions and draft risk reports and executive briefings for senior management.

Another area in which gen AI can play an important role is operational risk. Banks can use it for operational automation of controls, monitoring, and incident detection. It can also automatically draft risk and control self-assessments or evaluate existing ones for quality.

Key considerations in gen AI adoption

While several compelling use cases exist in which gen AI can propel productivity, prioritizing them is critical to realizing value while adopting the tech responsibly and sustainably. We see three critical dimensions that risk leaders can assess to determine prioritization of use cases and maximize impact (exhibit).

Chief risk officers can base their decisions on assessments across qualitative and quantitative dimensions of impact, risk, and feasibility. This process includes aligning with their banks’ overall visions for gen AI and associated guardrails, understanding relevant regulations (such as the EU AI Act), and assessing data sensitivity. All leaders need to be aware of the novel risks associated with this new tech. These risks can be broadly divided into eight categories:

• impaired fairness, when the output of a gen AI model may be inherently biased against a particular group of users
• intellectual property infringement, such as copyright violations and plagiarism incidents, as foundation models typically leverage internet-based data
• privacy concerns, such as unauthorized public disclosure of personal or sensitive information
• malicious use, such as dissemination of false content and use of gen AI by criminals to create false identities, orchestrate phishing attacks, or scam customers
• security threats, when vulnerabilities within gen AI systems can be breached or exploited
• performance and “explainability” risks, such as models providing factually incorrect answers and outdated information
• strategic risks through noncompliance with ESG standards or regulations, creating societal or reputational risks
• third-party risks, such as leakage of proprietary data to the public realm through the use of third-party tools

Winning strategies for planning a gen AI journey

Organizations that can extract value from gen AI should use a focused, top-down approach to start the journey. Given the scarcity of talent to scale gen AI capabilities, organizations should start with three to five high-priority risk and compliance use cases that align with their strategic priorities. They can execute these use cases in three to six months, followed by an estimation of business impact. Scaling the applications will require the development of a gen AI ecosystem that focuses on seven areas:

• a catalog of production-ready, reusable gen AI services and solutions (use cases) that can be easily plugged into a range of business scenarios and applications across the banking value chain
• a secure, gen-AI-ready tech stack that supports hybrid-cloud deployments to enable support for unstructured data, vector embedding, machine learning training, execution, and pre- and postlaunch processing
• integration with enterprise-grade foundation models and tools to enable fit-for-purpose selection and orchestration across open and proprietary models
• automation of supporting tools, including MLOps (machine learning operations), data, and processing pipelines, to accelerate the development, release, and maintenance of gen AI solutions
• governance and talent models that readily deploy cross-functional expertise empowered to collaborate and exchange knowledge (such as language, natural-language processing, and reinforcement learning from human feedback, prompt engineers, cloud experts, AI product leaders, and legal and regulatory experts)
• process alignment for building gen AI to support the rapid and safe end-to-end experimentation, validation, and deployment of solutions
• a road map detailing the timeline for when various capabilities and solutions will be launched and scaled that aligns with the organization’s broader business strategy

At a time when companies in all sectors are experimenting with gen AI, organizations that fail to harness the tech’s potential are risking falling behind in efficiency, creativity, and customer engagement. At the outset, banks should keep in mind that the move from pilot to production takes significantly longer for gen AI than for classical AI and machine learning. In selecting use cases, risk and compliance functions may be tempted to use a siloed approach. Instead, they should align with an entire organization’s gen AI strategy and goals.

For gen AI adoption by risk and compliance groups to be effective and responsible, it is critical that these groups understand the need for new risk management and controls, the importance of data and tech demands, and the new talent and operating-model requirements.

Risk management and controls

With gen AI, a new level of risk management and control is necessary. Winning responsibly requires both defensive and offensive strategies. All organizations face inbound risks from gen AI, in addition to the risks from developing gen AI use cases and embedding gen AI into standard workplace tools. So banks will need to evolve their risk mitigation capabilities accordingly.

The first wave heavily focuses on human-in-the-loop reviews to ensure the accuracy of model responses. Using gen AI to check itself, such as through source citations and risk scores, can make human reviews more efficient. By moving gen AI guardrails to real time and doing away with human-in-the-loop reviews, some companies are already putting gen AI directly in front of their customers. To make this move, risk and compliance professionals can work with development team members to set the guardrails and create controls from the start.

Risk functions need to be vigilant to manage gen AI risks at the enterprise level. They can fulfill that obligation by taking the following steps:

• Ensure that everyone across the organization is aware of the risks inherent in gen AI, publishing dos and don’ts and setting risk guardrails.
• Update model identification criteria and model risk policy (in line with regulations such as the EU AI Act) to enable the identification and classification of gen AI models, and have an appropriate risk assessment and control framework in place.
• Develop gen AI risk and compliance experts who can work directly with frontline development teams on new products and customer journeys.
• Revisit existing know-your-customer, anti–money laundering, fraud, and cyber controls to ensure that they are still effective in a gen-AI-enabled world.

Data and tech demands

Banks shouldn’t underestimate the data and tech demands related to a gen AI system, which requires enormous amounts of both. Why? For one, the process of context embedding is crucial to ensure the accuracy and relevance of results. That process requires the input of appropriate data and addressing data quality issues. Moreover, the data on hand may be insufficient. Organizations may need to build or invest in labeled data sets to quantify, measure, and track the performance of gen AI applications based on task and use.

Data will serve as a competitive advantage in extracting value from gen AI. An organization looking to automate customer engagement using gen AI must have up-to-date, accurate data. Organizations with advanced data platforms will be the most effective at harnessing gen AI capabilities.

Talent and operating-model requirements

Since gen AI is a transformational technology requiring an organizational shift, organizations will need to understand the related talent requirements. Banks can embed operating-model changes into their culture and business-as-usual processes. They can train new users not only on how to use gen AI but also on its limitations and strengths. Assembling a team of “gen AI champions” can help shape, build, and scale adoption of this new tech.

We expect gen AI to empower banks’ entire risk and compliance functions in the future. This implies a profound culture change that will require all risk professionals to be conversant with the new tech, its capabilities, its limitations, and how to mitigate those limitations. Using gen AI will be a significant shift for all organizations, but those that navigate the delicate balance of harnessing the technology’s powers while managing the risks it poses can achieve significant productivity gains.

Rahul Agarwal is an associate partner in McKinsey’s New Jersey office, Andreas Kremer is a partner in the Berlin office, Ida Kristensen is a senior partner in the New York office, and Angela Luget is a partner in the London office.

The authors wish to thank Adrija Banerjee, Stephan Beitz, Adrian Foerster, Yilin Li, Anke Raufuss, Ibtesam Siddiqui, and Claudia Satrústegui for their contributions to this article.

This article was edited by David Weidner, a senior editor in the Bay Area office.

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Technology, Society, and Conflict

ISBN : 978-1-80262-454-0 , eISBN : 978-1-80262-453-3

ISSN : 1572-8323

Publication date: 16 September 2022

(2022), "Prelims", Popkova, E.G. and Chatterji, M. (Ed.) Technology, Society, and Conflict ( Contributions to Conflict Management, Peace Economics and Development, Vol. 30 ), Emerald Publishing Limited, Leeds, pp. i-xxxv. https://doi.org/10.1108/S1572-832320220000030019

Emerald Publishing Limited

Copyright © 2022 Elena G. Popkova and Manas Chatterji

Half Title Page

TECHNOLOGY, SOCIETY, AND CONFLICT

Series Page

CONTRIBUTIONS TO CONFLICT MANAGEMENT, PEACE ECONOMICS AND DEVELOPMENT

Series Editor: Manas Chatterji

Books in the Series

Military Missions and their Implications Reconsidered: The Aftermath of September 11th, edited by G. Caforio and G. Kummel

Managing Conflict in Economic Convergence of Regions in Greater Europe, edited by F. Carluer

Cultural Differences between the Military and Parent Society in Democratic Countries, edited by G. Caforio

Conflict and Peace in South Asia, edited by M. Chatterji and B. M. Jain

War, Peace, and Security, edited by J. Fontanel and M. Chatterji

Armed Forces and Conflict Resolution, edited by G. Caforio, G. Kummel and B. Purkayastha

Regional Development and Conflict Management: A Case for Brazil, edited by R. Bar-El

Crisis, Complexity and Conflict, edited by I. J. Azis

Putting Teeth in the Tiger: Improving the Effectiveness of Arms Embargoes, edited by M. Brzoska and G. A. Lopez

Peace Science: Theory and Cases, by P. Gangopadhyay and M. Chatterji

Advances in Military Sociology: Essays in Honor of Charles C. Moskos (Two Volume Set), edited by G. Caforio

Arms and Conflict in the Middle East, edited by R. A. Attar

Economics of War and Peace: Economic, Legal, and Political Perspectives, edited by B. E. Goldsmith and J. Brauer

Conflict, Complexity and Mathematical Social Science, edited by G. Burt

Frontiers of Peace Economics and Peace Science, edited by M. Chatterji, C. Bo and R. Misra

Ethnic Conflict, Civil War and Cost of Conflict, edited by R. Caruso

Governance, Development and Conflict, edited by M. Chatterji, D. Gopal and S. Singh

New Wars, New Militaries, New Soldiers? Conflicts, The Armed Forces and the Soldierly Subject, edited by G. Kummel and J. Soeters

Cooperation for a Peaceful and Sustainable World, Part 1, edited by C. Bo, M. Chatterji and H. Chaoyan

Cooperation for a Peaceful and Sustainable World, Part 2, edited by L. Junsheng, C. Bo and H. Na

Nuclear Disarmament: Regional Perspectives on Progress, edited by P. M. Kamath

Understanding Terrorism: A Socio-economic Perspective, edited by R Caruso and A. Locatelli

The Evolving Boundaries of Defence: An Assessment of Recent Shifts in Defence Activities, edited by R. Bellais

Business, Ethics and Peace, edited by L. Bouckaert and M. Chatterji

Emotions, Decision-making, Conflict and Cooperation, edited by U. Luterbacher

Integral Ecology and Sustainable Business, edited by O. Jakobsen and L. Zsolna

Disarmament, Peace and Development, edited by R. Braun, C. Archer, I. Breines, M. Chatterji and A. Skiljan

How Do Leaders Make Decisions? Evidence from the East and West, Part A, edited by A. Mintz and D. (Dima) Adamsky

How Do Leaders Make Decisions? Evidence from the East and West, Part B, edited by A. Mintz and D. (Dima) Adamsky

New Frontiers in Conflict Management and Peace Economics: With a Focus on Human Security, edited by M. Chatterji and P. Gangopadhyay

CONTRIBUTIONS TO CONFLICT MANAGEMENT, PEACE ECONOMICS, AND DEVELOPMENT - VOLUME 30

ELENA G. POPKOVA

MGIMO University, Russia

MANAS CHATTERJI

Binghamton University, USA

Guest Professor, Peking University, China

United Kingdom – North America – Japan – India – Malaysia – China

Copyright Page

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2022

Editorial matter and selection © 2022 Elena G. Popkova and Manas Chatterji.Individual chapters © 2022 the authors.

Published under exclusive licence by Emerald Publishing Limited.

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No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use.

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ISBN: 978-1-80262-454-0 (Print)

ISBN: 978-1-80262-453-3 (Online)

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ISSN: 1572-8323 (Series)

About the Editors

The greatest change in the economic scene of the world is globalization. It is the qualitative transformation of economic relationships. There are some people who are in support of globalization and others who contend that globalization is the root of various problems. The major drivers of globalization are transnational corporations and technological development. Due to globalization and technological development, there has been a global shift in the world economy. The relationship between labour and capital in the geographical space has greatly changed.

The role of technology is the most important factor. The technological change can be incremental innovations, radical innovations, changes of technological system and relationship between technology and economy. These changes have taken place in Interchange and Data Science, Mechatronics, Cyber Security, Information Technology, Material Science and Corporate Management and Institutions. Most negative societal changes in technology are in the field of military and defence industries. There are some good and bad impacts of technology in all areas of our society.

This book is devoted to the problem of technological inequality, which arose in connection with the formation of the digital economy, gaining newfound relevance to the New Industrial Revolution. This book is written in support of SDG 10 and aims to create a clear and systematic scientific understanding of a new form of inequality – technological inequality. The goal of this book is to draw the attention of all parties – society, government, business and the international community – to the problem of technological inequality and unite all our efforts in solving these problems.

This book focuses on conflict management, peace economics and sustainable development. Social, business and international conflicts arising from technological inequality are studied in order to form a theoretical basis for their solutions. The subject area of this book is not the conflicts of technological inequality themselves, but ways to resolve them. Due to this, the book has a highly practical applied significance and is intended to serve as a useful guide on conflict management of the digital economy and on ensuring its balanced and sustainable (conflict-free) development.

It rethinks the idea of peace economics in the context of the New Industrial Revolution and shows a new facet of peace economics – reducing technological inequality as a path to stability, prosperity and well-being for all. It is based on the idea that the key to digital peace economics and sustainable development in the conditions of the New Industrial Revolution is a set of economic and legal measures of technological conflict-management. It shows that combined efforts at the level of state and law (including international law) and efforts of economic agents at the level of business and society open up new, wider prospects for reducing, and in the future, overcoming technological inequality.

The book provides scientific and methodological support for this mission with the help of the author’s applied recommendations in the field of supranational, state and corporate governance. We hope that our book will also contribute to mitigating the manifestations and consequences of the COVID-19 pandemic and crisis. To do this, we have offered special recommendations in the book on bridging the technological divide to unlock the potential of the digital economy to preserve and restore the quality of life in the face of economic restrictions and social distancing. We call upon everyone to contribute to technological conflict management, digital peace economics and sustainable development in the context of the New Industrial Revolution.

Prof. Manas Chatterji, Binghamton University, NY

Prof. Elena G. Popkova, MGIMO University, Moscow, Doctor of Economics

Acknowledgements

We are grateful to all the authors, especially the participants of the Consortium for Sustainable Development and Technological Leadership (Russia) – Rostov State University of Economics, Ufa State Petroleum Technological University, Komsomolsk-on-Amur State University and the Institute of Scientific Communications (INK) for the preparation of high-quality scientific materials included in this book.

We also want to thank our two assistants, Liyang Dong and Suzanne Lee, graduate students of SUNY Binghamton University for providing excellent editorial and secretarial services.

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GoDrone 2.0 – Drone Flight Planning App Gets a New Look!

Netherlands favourite flight planning app to relaunch with enhanced user experience and industry-ready flight planning tool set

Geneva, Switzerland:   Netherlands ANSP LVNL and Altitude Angel, the world’s most trusted UTM (Unified Traffic Management) technology provider, have chosen the second day of Airspace World to announce the release of a new and improved version of the popular flight planning tool, GoDrone, bringing a host of new features which will give users an even greater understanding of the country’s airspace and access to it.

Designed and powered by Altitude Angel, GoDrone has established itself as  the  flight planning app for professional and recreational drone pilots across the Netherlands since its launch in April 2020.

“Planning is central to all commercial drone operations within a civil CTR, and any operator should start their flight plan with GoDrone, which is why we’re continuing to invest in the app,” said Wouter Pekela, Program Manager Unmanned Aviation, LVNL.

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Altitude Angel is an award-winning provider of UTM (Unified Traffic Management) software, enabling those planning to operate, or develop UTM/U-Space solutions, to quickly integrate robust data and services with minimum effort.

Today, Altitude Angel’s market-defining technology is providing a critical, enabling service on which the future of UTM will be built across the globe. Altitude Angel is leading a consortium of businesses to build and develop 165 miles (265km) of ‘drone superhighways’ connecting airspace above Reading, Oxford, Milton Keynes, Cambridge, Coventry, and Rugby over the next two years. The Skyway superhighway network, enabled using Altitude Angel’s patented ARROW technology, will unlock the huge potential offered by unmanned aerial vehicles and be a catalyst to enable growth in the urban air mobility industry.

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Altitude Angel was founded by Richard Parker in 2014 and is headquartered in Reading, UK. 

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