risk management process essay

Risk Management Essay

Introduction, enterprise wide risk management (ewrm), grc and its relationship with ewrm, opinion about risk management today, threats and responses to be offered, inculcating culture in ewrm and/ or grc, is it simply too expensive for value, conclusion of risk management analysis, list of bibliography.

Internal and external environments pose a wide range of risks to an organization. Managers should establish strategies to manage dangers for the business’ long-term survival. This risk management essay tries to analyze how it can be achieved.

The culture of the organization enhances risk management strategies. This can be maintained by inculcating a culture of good values, beliefs, norms and attitudes.

Changes in the global markets today create a huge risk to organizations, and this creates the need to have mechanisms to solve corporate problems professionally. Thus, the importance of risk management is evident as it is a crucial aspect of a business. Proper strategies need to be established to ensure the safety and survival of organizations in the turbulent market environments (Jafari, Rezaeenour, Mazdeh, & Hooshmandi, 2011).

Therefore, risk management entails setting goals and objectives and ensuring that they are achieved in the most effective manner, managing change that is brought about by the introduction of new strategies, and managing cultural and technological diversity, among other tasks. Security measures cover a wide range of activities and aim at establishing better strategies for promoting the success of an organization. By finishing a risk management reflection, this essay will examine the subject in more detail.

Enterprise wide risk management involves managing risks and seizing opportunities which help an organization to achieve its objectives. Managing risks as opportunities come is very important in maintaining the success of the organization. Creating value to the shareholders capital is the major bestowed upon the managers of an organization.

This can be achieved by identifying opportunities available in the business environment and seizing them actively to ensure the interest of shareholders is protected. Therefore, EWRM is defined as an approach used to manage enterprises by controlling risks (Gupta, 2011).

It is important to note that organizations are founded on goals and it is the achievement of these goals that differentiates successful organizations from others. There are various risks associated with achieving goals and the management requires to develop strategies to reduce the effect or evaluate the impact such risks have on the organization.

Organizations set goals to be achieved and these goals can only be achieved by proper planning of all resources. Risks are encountered in every situation in an organization and it is important to put clear strategies to deal with risks as they occur to avoid losses (Hepworth, Rooney & Rooney, 2009).

Therefore, it is evident that EWRM is an important aspect that determines how organization succeeds in turbulent market conditions. Managers use risk management as a benchmark to measure the achievement of an organization. An organization that is able to manage all the risk elements successfully acquires better position in the market.

Most successful organizations have ventured in risky businesses and this has created a lot of wealth to the shareholders. Operating in high risk activities requires establishing a strong risk management system to ensure that the organization can not make a lot of losses in case the event of risks occurring (Mbuya, n.d.).

Governance, risk and compliance are management tools that comprise of three aspects. First, governance which refers to the process by which the top management team apply to control, plan, organize and direct the resources of an organization to achieve the goals which have been set by the shareholders. It involves making decisions by the top management by using the appropriate information.

Secondly, risk management involves the identification, analysis and response to the risks affecting an organization. To manage risks an organization can control, avoid, accept, or transfer the risks to other parties. Lastly, compliance deals with conforming to all requirements stipulated by the concerned stakeholders (Mohapatra, n.d.).

According to Wilson and Dobson (2008) governance, risk and compliance is related to EWRM in that the management puts measures to regulate the activities of the organization to ensure that all rules and regulations are adhered to. By complying with the rules and regulations of the organization, the management ensures that it avoids the risks of penalties related to legal systems of a country.

The management evaluates the costs related to the implementation of various strategies and this helps solve some problems that may affect the smooth operation of an organization. Compliance enhances the control of risks associated with the implementation of decisions made by the management of an organization (Mather, Kumaraswamy & Latif, 2009).

Therefore, we find out that there is a close relationship between GRC and EWRM because the two interact with each other. However, there are few differences between GRC and EWRM in that GRC deals with how organizations are managed and how the organization benefits when all rules and regulations are adhered to by all stakeholders.

It also explains the relationship between the internal and external environmental elements and how they interact with each other. On the other hand, EWRM is based on risk management at the enterprise level and provides little interaction between the internal and external environments (Mather, Kumaraswamy & Latif, 2009).

Enterprise wide risk management (EWRM) as an assurance tool is increasingly being mandated; indeed it is embedded as a concept in ISO31000:2009. This statement is a fair comment on the state of play today. Many organizations have realized the importance of managing risks and this has been facilitated by the intensifying number of risks in the market environments today.

To establish better strategy for improving the competitiveness of an organization can only be made possible by managing all the risks that may be associated with the implementation of such strategies (Loras, 2010).

There are various threats that managers encounter when maintaining values in an organization. In competitive environment organizations face threats which may hinder accomplishment of the stipulated values.

Some of these threats may be cause by changes in internal and external environmental factors such macro and micro economic variables, legal factors, technological changes, political environments among others (Champoux, 2010).

The response to these threats determines the success of an organization. The management responds by studying the changes in the market conditions as well as other factors that may affect the activities of the organization.

Some examples of the responses that can be offered to these threats are change management, making better decisions, establishing stronger strategies, collaborating with consultants and other measures (Klein, 2011).

Change management is an important aspect that managers need to learn when dealing with threats and responses. Moran and Brightman (2001, pg 111) have defined change management as “the process of continually renewing an organization’s direction, structure, and capabilities to serve the ever-changing needs of external and internal customers.”

Change is the opening through which people or organization focus the future by bringing new systems which create success. Change can be introduced by an individual person or organization or it can be happen by itself. Change brings opportunities for growth and improvement.

The management of an organization should become fast in introducing and implementing change since the world is changing at an alarming speed. Jennings and Haughton (2002) explain that the need for change has been caused by “revolutionary technologies, consolidation, well-funded new competition, unpredictable customers, and a quickening in the pace of change hurled unfamiliar conditions at management.” (P. 212).

Change management focuses on developing future structures of a business to improve the performance as well as introduce new technologies which improve the performance of the organization. The path towards establishing future structures should be well monitored to create a smooth transition for the organization to achieve the desired changes as well as manage risks.

Crisis within the organization create the need for organizational change and the management should be prepared to handle all changes that might be required by the organization. The internal and external business environments are changing at an alarming rate and change management is an essential tool for capturing new developments being introduced.

Competition in the global markets has increased and this is forcing managers to introduce innovation in the management of the systems within an organization in order to catch up with the changes (Luecke, 2003).

Many changes introduced within an organization fail due to poor preparedness as well as management of the entire process. The lack of appropriate frameworks to support the implementation and management of change within an organization are the main causes of failure by many changes introduced by the management (Burnes, 2004).

The nature of organizational change has been assumed for a long period of time by managers and contemporary studies have indicated that strict measures should be introduced to cater for the gap between the success and failure of the changes being introduced by an organization.

According to Edmonstone (1995) “many of the change processes over the last 25 years have been subject to fundamental flaws, preventing the successful management of change” (p. 16).

Contemporary studies have identified that the pace of change management has increase in the recent years and managers are becoming more responsive to the changes in the environment (Burnes, 2004). There is no organization or industry is immune from change since change is caused by many internal and external factors.

The introduction, implementation and monitoring of change requires the collaboration of all stakeholders to an organization. Change cannot be achieved by an individual department, or sector. The management should respond quickly to internal and external changes required by the organization. Delays in response can retard the achievement of appropriate change.

Since new technologies are being introduced in the global markets each day, delay in establishing change may result into the organization adopting old systems which are not beneficial. Adequate research should be done into the recent changes in the market. There are no universally acceptable processes of creating change in an organization. The management should apply the best structures relevant to the organization (Burnes, 2004).

According to Kotter and Heskett (1992) culture refers to the beliefs, attitudes, values and norms that a given people have. The organizational culture is defined by the stakeholders and this is reflected in the nature of activities the management sets. The culture of an organization is inculcated in the GRC by creating systems of compliance.

Culture establishes the norms to be observed by all stakeholders and this creates the basis of compliance. Culture explains the extent to which the management can take risks while managing the resources of an organization (Klein, 2011).

There are organizations which are risk-averse while others are encourage taking risks as the basis of operation. This differentiates the decisions to be made by the management during the operation and implementation of the strategies (Burnaby & Hass, 2009).

To achieve appropriate governance the management requires establishing better strategies of promoting the cultural morals of an organization. Cultural morals have become a major concern in the business world today because organizations are operating in multicultural environments.

Working with people from different cultures requires understanding the cultures of each person in the organization Global human resource management involves dealing with people from different cultures and different backgrounds. There are several advantages and disadvantages of operating global human resource management.

Some companies have failed while others have acquired great success after extending their operations across the borders. Proper strategies are required in the management of employees with diversified cultures.

The political, legal and social environments in the global labor markets are different and the management should be very accurate in establishing the appropriate strategies which match the particular needs of the different employees. With the increase in globalization many people are seeking employment across the borders of their domestic markets.

However, organizations dealing in the international scene face some challenges when relocating employees from one country to another. There are several barriers which hinder managers of multinational companies from relocating their employees from one country to another. These barriers relate to the physical conditions, legal aspects, economics, and cultural barriers (Golembiewski, 1995).

Complexity in the diverse cultures makes is difficult to operate in many countries. Several companies have failed in their strategies to operate in the global scene due to due to poor integration of the ingredients required in multinational human resources management. Global human resource management is a strategy that is gaining a lot of importance especially after the spirit of globalization started.

Several companies have improved their performance after establishing proper strategies to manage their employees while others have failed due to poor integration of the required aspects of global human resources management.

The need to understand the cultural differences, the diversity in economic, legal and political environments is very important when dealing with global human resources management (Burnaby & Hass, 2009).

The culture of an organization dictates the shape taken by the management goals and objectives. The success or failure of organizational change is determined to a great extent by the culture in the organization

Cultural change is required for the achievement of successful change management strategies. The globalization of many organizations has created a scenario where multinational organizations are operating in diverse cultures where many people are involved. The integration of each cultural aspect into the processes of the organizational change is essential for the success of the organization.

The global business requires applying the best strategies to achieve a competitive edge. Many global organizations have failed to venture into some countries due to poor analysis of cultural aspects of the people it is involved in. the management of change is a very important aspect in achieving success in accomplishing global goals.

The management of an organization must analyze the cultural needs of all consumer groups. This will enable the management to match the cultural needs of the various consumers into the products being manufactured by the organization.

In addition, the employees of the organization need to understand the cultural aspects of the organization in order to establish goals which are achievable and which will create success to the organization. Both the internal and external environmental factors should be well analyzed when integrating a culture that will create successful change management strategies (Schein, 1992).

Changing culture is a systematic process which requires proper strategies to ensure all stakeholders internalize the required changes. This process is affected by factors such as the complexity, ambiguity and powers the cultural aspects of the organization.

The main architects of an organizational culture are the top management individuals.The culture of an organization is developed by the people working there as well as all other internal and external stakeholders (Schein, 1992).

It is not too expensive to maintain values in an organization because there are more benefits accrued from operating in an ethical manner. Values provide an organization with the guidelines to be applied in the implementation of strategies.

When an organization conducts business unethically there are many costs incurred and these can only be avoided by applying the best values possible. Maintaining values improves the public image of an organization and this makes an organization achieve a competitive edge (Thompson & Martin, 2005).

Organizations which fail to establish a good system of values they end up incurring many losses which could have been avoided. These costs may include loss of customer trust, legal action, bad corporate image and others.

The cost of failing to maintain values in an organization is too high not only in the short run but also in the long run. Organizations which focus on existing in the market for a longer period of time use strategies which promote a good image which will attract more customers, they maintain legal ethics and other activities which improve the position of the company in the market (Cunningham, 2001).

Risk management is an important process that managers should maintain in an organization. It is inevitable to have risks and managers should have better strategies to deal with risks. The long-term survival of an organization depends on the ability to manage risks. The intensifying competition in the global markets has forced managers to focus on maintaining a strong risks management program by establishing values.

Complying with the values and cultural aspects of an organization is important in achieving the goals and objectives of an organization. The culture of an organization determines its success in the market environment. It is a reflection of the beliefs and attitudes that people have towards the organizational systems.

Culture is developed and shaped by the stakeholders of the organization. Change management is very important to an organization and managers should possess the required skills of carrying out this process. Therefore, risks management is an important activity for organization in the modern market environment and all managers should embrace it for the long-term survival of their businesses.

Burnaby, P. and Hass, S. (2009). Ten steps to enterprise-wide risk management. Corporate Governance , 9(5). p. 539-550.

Burnes, B. (2004) Managing Change: A Strategic Approach to Organizational Dynamics , 4th Edn (Harlow: Prentice Hall)

Champoux, J. (2010). Organizational behavior: Integrating individuals, Groups, and organizations . New York: NY, Taylor & Francis.

Cunningham, B. J. (2001). Researching organizational values and beliefs: the Echo approach. New York: NY, Greenwood Publishing Group.

Edmonstone, J. (1995) ‘managing change: an emerging consensus’, Health Manpower Management, 21(1), pp. 16–19.

Golembiewski, R. T. (1995). Managing diversity in organizations . Alabama, University of Alabama Press.

Gupta, P. K. (2011). Risk management in Indian companies: EWRM concerns and issues. The Journal of Risk Finance , 12(2). P. 121-139.

Jafari, M., Rezaeenour, J., Mazdeh, M. and Hooshmandi, A. (2011). Development and evaluation of a knowledge risk management model for project-based organizations. Management decision , 49(3). P. 309-329.

Jennings, J. and L. Haughton. (April 16, 2002). It’s not the BIG and eats the SMALL… it’s the FAST that eats the SLOW. Harper Paperbacks; 1st edition. 288 pages. ISBN-10: 0066620546 ISBN-13: 978-0066620541

Klein, A. (2011). Corporate culture: its value as a resource for competitive advantage. Journal of Business Strategy , 32(2). p. 21-28.

Kotter, J. P. and Heskett, J. L. (1992). Corporate culture and performance. New York, Simon and Schuster.

Loras,J. (2010). Book Review : Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures. Management Decision, 49(1). p. 167-170.

Luecke, R. (2003) Managing Change and Transition (Boston, MA: Harvard Business School Press).

Mather, T., Kumaraswamy, S. & Latif, S. (2009). Cloud Security and Privacy: An Enterprise Perspective on Risks and Complianc e. New Jersey: NJ, O’Reilly Media, Inc.

Mbuya, J. C. (n.d.). Risk management strategy . South Africa, Dr John Chibaya Mbuya.

Mohapatra, (n.d.). Business Process Automation . New Delhi, PHI Learning Pvt Ltd.

Moran, J. W. and Brightman, B. K. (2001). ‘Leading organizational change’, Career Development International, 6(2), pp. 111–118.

Schein, Edgar. (1992). Organizational Culture and Leadership , Second Edition. San Francisco: Jossey-Bass

Thompson, J. L. and Martin, F. (2005). Strategic management: awareness and change. London, Cengage Learning EMEA.

Wilson, S. B. and Dobson, M. S. (2008). Goal setting: how to create an action plan and achieve your goals. New Jersey: NJ, AMACOM Div American Mgmt Assn.

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Risk Management 101: Process, Examples, Strategies

Emily Villanueva

August 16, 2023

Effective risk management takes a proactive and preventative stance to risk, aiming to identify and then determine the appropriate response to the business and facilitate better decision-making. Many approaches to risk management focus on risk reduction, but it’s important to remember that risk management practices can also be applied to opportunities, assisting the organization with determining if that possibility is right for it.

Risk management as a discipline has evolved to the point that there are now common subsets and branches of risk management programs, from enterprise risk management (ERM) , to cybersecurity risk management, to operational risk management (ORM) , to  supply chain risk management (SCRM) . With this evolution, standards organizations around the world, like the US’s National Institute of Standards and Technology (NIST) and the International Standards Organization (ISO) have developed and released their own best practice frameworks and guidance for businesses to apply to their risk management plan.

Companies that adopt and continuously improve their risk management programs can reap the benefits of improved decision-making, a higher probability of reaching goals and business objectives, and an augmented security posture. But, with risks proliferating and the many types of risks that face businesses today, how can an organization establish and optimize its risk management processes? This article will walk you through the fundamentals of risk management and offer some thoughts on how you can apply it to your organization.

What Are Risks?

We’ve been talking about risk management and how it has evolved, but it’s important to clearly define the concept of risk. Simply put, risks are the things that could go wrong with a given initiative, function, process, project, and so on. There are potential risks everywhere — when you get out of bed, there’s a risk that you’ll stub your toe and fall over, potentially injuring yourself (and your pride). Traveling often involves taking on some risks, like the chance that your plane will be delayed or your car runs out of gas and leave you stranded. Nevertheless, we choose to take on those risks, and may benefit from doing so. 

Companies should think about risk in a similar way, not seeking simply to avoid risks, but to integrate risk considerations into day-to-day decision-making.

• What are the opportunities available to us?
• What could be gained from those opportunities?
• What is the business’s risk tolerance or risk appetite – that is, how much risk is the company willing to take on?
• How will this relate to or affect the organization’s goals and objectives?
• Are these opportunities aligned with business goals and objectives?

With that in mind, conversations about risks can progress by asking, “What could go wrong?” or “What if?” Within the business environment, identifying risks starts with key stakeholders and management, who first define the organization’s objectives. Then, with a risk management program in place, those objectives can be scrutinized for the risks associated with achieving them. Although many organizations focus their risk analysis around financial risks and risks that can affect a business’s bottom line, there are many types of risks that can affect an organization’s operations, reputation, or other areas.

Remember that risks are hypotheticals — they haven’t occurred or been “realized” yet. When we talk about the impact of risks, we’re always discussing the potential impact. Once a risk has been realized, it usually turns into an incident, problem, or issue that the company must address through their contingency plans and policies. Therefore, many risk management activities focus on risk avoidance, risk mitigation, or risk prevention.

What Different Types of Risks Are There?

There’s a vast landscape of potential risks that face modern organizations. Targeted risk management practices like ORM and SCRM have risen to address emerging areas of risk, with those disciplines focused on mitigating risks associated with operations and the supply chain. Specific risk management strategies designed to address new risks and existing risks have emerged from these facets of risk management, providing organizations and risk professionals with action plans and contingency plans tailored to unique problems and issues.

Common types of risks include: strategic, compliance, financial, operational, reputational, security, and quality risks.

Strategic Risk

Strategic risks are those risks that could have a potential impact on a company’s strategic objectives, business plan, and/or strategy. Adjustments to business objectives and strategy have a trickle-down effect to almost every function in the organization. Some events that could cause strategic risks to be realized are: major technological changes in the company, like switching to a new tech stack; large layoffs or reductions-in-force (RIFs); changes in leadership; competitive pressure; and legal changes.

Compliance Risk

Compliance risks materialize from regulatory and compliance requirements that businesses are subject to, like Sarbanes-Oxley for publicly-traded US companies, or GDPR for companies that handle personal information from the EU. The consequence or impact of noncompliance is generally a fine from the governing body of that regulation. These types of risks are realized when the organization does not maintain compliance with regulatory requirements, whether those requirements are environmental, financial, security-specific, or related to labor and civil laws.

Financial Risk

Financial risks are fairly self-explanatory — they have the possibility of affecting an organization’s profits. These types of risks often receive significant attention due to the potential impact on a company’s bottom line. Financial risks can be realized in many circumstances, like performing a financial transaction, compiling financial statements, developing new partnerships, or making new deals.

Operational Risk

Risks to operations, or operational risks, have the potential to disrupt daily operations involved with running a business. Needless to say, this can be a problematic scenario for organizations with employees unable to do their jobs, and with product delivery possibly delayed. Operational risks can materialize from internal or external sources — employee conduct, retention, technology failures, natural disasters, supply chain breakdowns — and many more.

Reputational Risk

Reputational risks are an interesting category. These risks look at a company’s standing in the public and in the media and identify what could impact its reputation. The advent of social media changed the reputation game quite a bit, giving consumers direct access to brands and businesses. Consumers and investors too are becoming more conscious about the companies they do business with and their impact on the environment, society, and civil rights. Reputational risks are realized when a company receives bad press or experiences a successful cyber attack or security breach; or any situation that causes the public to lose trust in an organization.

Security Risk

Security risks have to do with possible threats to your organization’s physical premises, as well as information systems security. Security breaches, data leaks, and other successful types of cyber attacks threaten the majority of businesses operating today. Security risks have become an area of risk that companies can’t ignore, and must safeguard against.

Quality Risk

Quality risks are specifically associated with the products or services that a company provides. Producing low-quality goods or services can cause an organization to lose customers, ultimately affecting revenue. These risks are realized when product quality drops for any reason — whether that’s technology changes, outages, employee errors, or supply chain disruptions.

Steps in the Risk Management Process

The six risk management process steps that we’ve outlined below will give you and your organization a starting point to implement or improve your risk management practices. In order, the risk management steps are: 

• Risk identification
• Risk analysis or assessment
• Controls implementation
• Resource and budget allocation
• Risk mitigation
• Risk monitoring, reviewing, and reporting

If this is your organization’s first time setting up a risk management program, consider having a formal risk assessment completed by an experienced third party, with the goal of producing a risk register and prioritized recommendations on what activities to focus on first. Annual (or more frequent) risk assessments are usually required when pursuing compliance and security certifications, making them a valuable investment.

Step 1: Risk Identification

The first step in the risk management process is risk identification. This step takes into account the organization’s overarching goals and objectives, ideally through conversations with management and leadership. Identifying risks to company goals involves asking, “What could go wrong?” with the plans and activities aimed at meeting those goals. As an organization moves from macro-level risks to more specific function and process-related risks, risk teams should collaborate with critical stakeholders and process owners, gaining their insight into the risks that they foresee.

As risks are identified, they should be captured in formal documentation — most organizations do this through a risk register, which is a database of risks, risk owners, mitigation plans, and risk scores.

Step 2: Risk Analysis or Assessment

Analyzing risks, or assessing risks, involves looking at the likelihood that a risk will be realized, and the potential impact that risk would have on the organization if that risk were realized. By quantifying these on a three- or five-point scale, risk prioritization becomes simpler. Multiplying the risk’s likelihood score with the risk’s impact score generates the risk’s overall risk score. This value can then be compared to other risks for prioritization purposes.

The likelihood that a risk will be realized asks the risk assessor to consider how probable it would be for a risk to actually occur. Lower scores indicate less chances that the risk will materialize. Higher scores indicate more chances that the risk will occur.

Likelihood, on a 5×5 risk matrix, is broken out into:

• Highly Unlikely
• Highly Likely

The potential impact of a risk, should it be realized, asks the risk assessor to consider how the business would be affected if that risk occurred. Lower scores signal less impact to the organization, while higher scores indicate more significant impacts to the company.

Impact, on a 5×5 risk matrix, is broken out into:

• Negligible Impact
• Moderate Impact
• High Impact
• Catastrophic Impact

Risk assessment matrices help visualize the relationship between likelihood and impact, serving as a valuable tool in risk professionals’ arsenals.

Organizations can choose whether to employ a 5×5 risk matrix, as shown above, or a 3×3 risk matrix, which breaks likelihood, impact, and aggregate risk scores into low, moderate, and high categories.

Step 3: Controls Assessment and Implementation

Once risks have been identified and analyzed, controls that address or partially address those risks should be mapped. Any risks that don’t have associated controls, or that have controls that are inadequate to mitigate the risk, should have controls designed and implemented to do so.

Step 4: Resource and Budget Allocation

This step, the resource and budget allocation step, doesn’t get included in a lot of content about risk management. However, many businesses find themselves in a position where they have limited resources and funds to dedicate to risk management and remediation. Developing and implementing new controls and control processes is timely and costly; there’s usually a learning curve for employees to get used to changes in their workflow.

Using the risk register and corresponding risk scores, management can more easily allocate resources and budget to priority areas, with cost-effectiveness in mind. Each year, leadership should re-evaluate their resource allocation as part of annual risk lifecycle practices.

Step 5: Risk Mitigation

The risk mitigation step of risk management involves both coming up with the action plan for handling open risks, and then executing on that action plan. Mitigating risks successfully takes buy-in from various stakeholders. Due to the various types of risks that exist, each action plan may look vastly different between risks. 

For example, vulnerabilities present in information systems pose a risk to data security and could result in a data breach. The action plan for mitigating this risk might involve automatically installing security patches for IT systems as soon as they are released and approved by the IT infrastructure manager. Another identified risk could be the possibility of cyber attacks resulting in data exfiltration or a security breach. The organization might decide that establishing security controls is not enough to mitigate that threat, and thus contract with an insurance company to cover off on cyber incidents. Two related security risks; two very different mitigation strategies. 

One more note on risk mitigation — there are four generally accepted “treatment” strategies for risks. These four treatments are:

• Risk Acceptance: Risk thresholds are within acceptable tolerance, and the organization chooses to accept this risk.
• Risk Transfer : The organization chooses to transfer the risk or part of the risk to a third party provider or insurance company.
• Risk Avoidance : The organization chooses not to move forward with that risk and avoids incurring it.
• Risk Mitigation : The organization establishes an action plan for reducing or limiting risk to acceptable levels.

If an organization is not opting to mitigate a risk, and instead chooses to accept, transfer, or avoid the risk, these details should still be captured in the risk register, as they may need to be revisited in future risk management cycles.

Step 6: Risk Monitoring, Reviewing, and Reporting

The last step in the risk management lifecycle is monitoring risks, reviewing the organization’s risk posture, and reporting on risk management activities. Risks should be monitored on a regular basis to detect any changes to risk scoring, mitigation plans, or owners. Regular risk assessments can help organizations continue to monitor their risk posture. Having a risk committee or similar committee meet on a regular basis, such as quarterly, integrates risk management activities into scheduled operations, and ensures that risks undergo continuous monitoring. These committee meetings also provide a mechanism for reporting risk management matters to senior management and the board, as well as affected stakeholders.

As an organization reviews and monitors its risks and mitigation efforts, it should apply any lessons learned and use past experiences to improve future risk management plans.

Examples of Risk Management Strategies

Depending on your company’s industry, the types of risks it faces, and its objectives, you may need to employ many different risk management strategies to adequately handle the possibilities that your organization encounters. 

Some examples of risk management strategies include leveraging existing frameworks and best practices, minimum viable product (MVP) development, contingency planning, root cause analysis and lessons learned, built-in buffers, risk-reward analysis, and third-party risk assessments.

Leverage Existing Frameworks and Best Practices

Risk management professionals need not go it alone. There are several standards organizations and committees that have developed risk management frameworks, guidance, and approaches that business teams can leverage and adapt for their own company. 

Some of the more popular risk management frameworks out there include:

• ISO 31000 Family : The International Standards Organization’s guidance on risk management.
• NIST Risk Management Framework (RMF) : The National Institute of Standards and Technology has released risk management guidance compatible with their Cybersecurity Framework (CSF).
• COSO Enterprise Risk Management (ERM) : The Committee of Sponsoring Organizations’ enterprise risk management guidance.

Minimum Viable Product (MVP) Development

This approach to product development involves developing core features and delivering those to the customer, then assessing response and adjusting development accordingly. Taking an MVP path reduces the likelihood of financial and project risks, like excessive spend or project delays by simplifying the product and decreasing development time.

Contingency Planning

Developing contingency plans for significant incidents and disaster events are a great way for businesses to prepare for worst-case scenarios. These plans should account for response and recovery. Contingency plans specific to physical sites or systems help mitigate the risk of employee injury and outages.

Root Cause Analysis and Lessons Learned

Sometimes, experience is the best teacher. When an incident occurs or a risk is realized, risk management processes should include some kind of root cause analysis that provides insights into what can be done better next time. These lessons learned, integrated with risk management practices, can streamline and optimize response to similar risks or incidents.

Built-In Buffers

Applicable to discrete projects, building in buffers in the form of time, resources, and funds can be another viable strategy to mitigate risks. As you may know, projects can get derailed very easily, going out of scope, over budget, or past the timeline. Whether a project team can successfully navigate project risks spells the success or failure of the project. By building in some buffers, project teams can set expectations appropriately and account for the possibility that project risks may come to fruition.

Risk-Reward Analysis

In a risk-reward analysis, companies and project teams weigh the possibility of something going wrong with the potential benefits of an opportunity or initiative. This analysis can be done by looking at historical data, doing research about the opportunity, and drawing on lessons learned. Sometimes the risk of an initiative outweighs the reward; sometimes the potential reward outweighs the risk. At other times, it’s unclear whether the risk is worth the potential reward or not. Still, a simple risk-reward analysis can keep organizations from bad investments and bad deals.

Third-Party Risk Assessments

Another strategy teams can employ as part of their risk management plan is to conduct periodic third-party risk assessments. In this method, a company would contract with a third party experienced in conducting risk assessments, and have them perform one (or more) for the organization. Third-party risk assessments can be immensely helpful for the new risk management team or for a mature risk management team that wants a new perspective on their program. 

Generally, third-party risk assessments result in a report of risks, findings, and recommendations. In some cases, a third-party provider may also be able to help draft or provide input into your risk register. As external resources, third-party risk assessors can bring their experience and opinions to your organization, leading to insights and discoveries that may not have been found without an independent set of eyes.

Components of an Effective Risk Management Plan

An effective risk management plan has buy-in from leadership and key stakeholders; applies the risk management steps; has good documentation; and is actionable. Buy-in from management often determines whether a risk management function is successful or not, since risk management requires resources to conduct risk assessments, risk identification, risk mitigation, and so on. Without leadership buy-in, risk management teams may end up just going through the motions without the ability to make an impact. Risk management plans should be integrated into organizational strategy, and without stakeholder buy-in, that typically does not happen. 

Applying the risk management methodology is another key component of an effective plan. That means following the six steps outlined above should be incorporated into a company’s risk management lifecycle. Identifying and analyzing risks, establishing controls, allocating resources, conducting mitigation, and monitoring and reporting on findings form the foundations of good risk management. 

Good documentation is another cornerstone of effective risk management. Without a risk register recording all of a company’s identified risks and accompanying scores and mitigation strategies, there would be little for a risk team to act on. Maintaining and updating the risk register should be a priority for the risk team — risk management software can help here, providing users with a dashboard and collaboration mechanism.

Last but not least, an effective risk management plan needs to be actionable. Any activities that need to be completed for mitigating risks or establishing controls, should be feasible for the organization and allocated resources. An organization can come up with the best possible, best practice risk management plan, but find it completely unactionable because they don’t have the capabilities, technology, funds, and/or personnel to do so. It’s all well and good to recommend that cybersecurity risks be mitigated by setting up a 24/7 continuous monitoring Security Operations Center (SOC), but if your company only has one IT person on staff, that may not be a feasible action plan.

Executing on an effective risk management plan necessitates having the right people, processes, and technology in place. Sometimes the challenges involved with running a good risk management program are mundane — such as disconnects in communication, poor version control, and multiple risk registers floating around. Risk management software can provide your organization with a unified view of the company’s risks, a repository for storing and updating key documentation like a risk register, and a space to collaborate virtually with colleagues to check on risk mitigation efforts or coordinate on risk assessments. Get started building your ideal risk management plan today!

Emily Villanueva, MBA, is a Senior Manager of Product Solutions at AuditBoard. Emily joined AuditBoard from Grant Thornton, where she provided consulting services specializing in SOX compliance, internal audit, and risk management. She also spent 5 years in the insurance industry specializing in SOX/ICFR, internal audits, and operational compliance. Connect with Emily on LinkedIn .

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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.

Access your free e-book today.

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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The Risk Management Process

Introduction, overview of risks management, risk management in a new project, identifying and defining risks, evaluating the risks, risk control, reference list.

Success in business entails making the best decision at all opportunities.

When entering a business an investor is hopeful that the business will be successful, grow and give good returns on investments. However, the ability to evaluate the risk involved in the business, understand and manage the risk is very important. The business environment sometimes seems obvious but various risk variables may be involved. The ability to identify the risks involves helps a company to be prepared for the risk or evade the risk. Implementing a new project for a non-financial company may be challenging but proper approaches in identifying, measuring and managing the risk can be very helpful.

Risk management is part of the process of projects appraisal, implementation and management. In essence, Risk management involves identifying the risks involved in a project, analyzing the risks, planning for implementation of a project and managing the risks involved. Risk management involves a proactive approach that preempts the potential risks for managing a project (Glenn, 2000, p107). Risk management also involved reactive planning, identifying triggers, controlling the risks, risk monitoring and use of computer simulations for risk management.

Risk management is part of projects implementation and management. Each project has potential risks and opportunities that should be evaluated before and in the process of implementing a project. Risks are not always bad to a company. Some risks can help a company to identify other opportunities that could be very important to the company. The process of identifying the risk is important in implementing a project. The process can help the people involved in the new project to have in-depth knowledge of the company’s business, identify challenges in the area of business, evaluate other companies in the same business and build cohesion among themselves (Abkowitz, 2008, p56). Sometimes the feared risks are not as great as assumed and sometimes the risks are not real. Risk assessment and management, thus help the management to be ready for eventuality or possibilities.

Implementing a new project is usually a challenge. A new project may lead to success to a company or lead to failure. In business, it is expected that any investment should be able to bring returns on the resources invested. Since resources are scarce, taking blind chances is usually not a good decision. Instead, investors prefer to evaluate a prospective project to make the best decision to their investment plan. Project appraisal in project management helps to evaluate various variables that can influence success of a project. Risk management is one of the most important steps in project appraisal.

The risks involved in a new project differ from one project to another. For example, the risks involved by a financial company may differ completely to risks in non-financial company. Although some companies may be involved in similar businesses, the risks involved in individual company may differ in a bigger way (Royer, 2001, p41). In addition, risks involved in a project are not stagnant. The dynamic nature of risks calls for continuous evaluation of the risk and proper response to the risks from time to time.

Risk identification step is the basic step in managing risks. In this step, the risks involved in a project are identified through various approaches. The aim of risk identification step is to have a clear understanding of the potential risks in a project. As the initial step in managing risk, failure in this step can lead to failure in the whole process of risk management. Ability to define a risk is considered as a major step in managing the risk.

Risk management is broader than trying to avoid risks but an approach that optimize a given context despite of the risks. For this reason, risk identification and deification does not aim at scaring away a company from a project but prepare it for the risks. Systematic ways of identifying risks is the most preferred approach. This methods offer logical means of evaluating a business environment or a new project for the possible risks.

It is appropriate that a business should be able to identify the risks that it faces. Various systematic approaches are used to identify the risks involve. Approach such as risk checklist, questionnaires, analysis of financial statement, analysis of company’s operations and workshops are some of the approaches in identifying risks. Organized collective approach to risk identification is also important in risk management.

The success of risk management falls more on the ability to know the risks (Chris & Stephen, 2002, p113). A new project may bring in new risks and opportunities to a company. The ability of the project planner to identify the risk helps in identifying the most appropriate approaches to handle the risks. There is no doubt that risk identification is the most important step in managing risks; success in the other steps fully depends on it. The scenario where risks that were not identified happen would lead to failure of the project. Risk control that is necessary to mitigate or avoid risks in a project cannot be applied to risks that are not initially identified. Risk identification process has the objective of identifying the risks in an effective way.

One view to risk identification is to let an individual such as project leader or project management make the identification. This view leaves this responsibility with a project manager while other people involved in the project are not involved. Some project managers prefers this approach with believe that as the most senior individuals in a project, they are in a better position to know the risks that can affect the projects (Royer, 2001, p31). This approach has advantages but also its limitations. When one individual is involved in risk identification, he or she would be able to identify the risk faster than when more than one person is involved (David, 2003, p89). On the other hand, an individual may not be able to have in depth knowledge of all aspects of the project. In this case, the individuals may not be able to identify all potential risks that can affect a project. There is also possibility of bias in the risks identified due to the individual’s bias.

The responsibility of identifying the potential risks to the new project should be collective. The project team as a group has a wider view of the risks that can affect the new project. By sharing the information through systematic ways, the risks involved would be identified easily leading to higher possibility of success of the project. Brainstorming among project team help expose the potential risks.

Although brainstorming would be good approach to identifying risks, there are certain requirements that should be fulfilled. All members in the brainstorms should feel comfortable to express their thoughts without criticism; there should be enough time every one and rush conclusions should be avoided.

Although, risk identification is an important step in managing risks to the new project, failure to measure the risks may lead to failure of the process. The new project may have various different risks. For example, the risk may include stiff competition, technology change, bad weather or unresponsive market (Bilal, 2003, p57). All the risks involved should be able measurable. The popular approach to measuring risk is classifying the risks depending on their nature and their effects to the project. Other approach attempts to offer quantitative of qualitative values to the risks. The value offered a risk shows the nature of the risk, urgency and the effort that should be applied on the risk.

Occurrence of a risk is a probability. The risks are events or occurrence that can happen or not. With this in mind, the frequency of risks identified is determined as a way of determining the probability for occurrence of a risk (Culp, 2001, p27). A part from the frequency of a risk, the magnitude of the risks identified should be determined. Risks involved in a new project may vary in nature and magnitude. For example, the risks involve in the new project may involve resource, operational, financial or market risks. These risks have both frequency and magnitude variable. The likelihood for occurrence of each risk in evaluated to come up with an estimate of the chance for the risk to occur (Evin, 2000, p44). The other variable, magnitude, is very crucial in decision-making. The magnitude of the risk determines the effect of the risk to the company in event of occurring. For example, the financial risk could be evaluated in terms of dollar or percentage over investment. This information helps the decision maker to decide whether to avoid the risk in the new project or control it.

Three major steps are involved in assessing the risks involved in the new project. First, the risks are prioritized according to the probability and magnitude. The risks are then compared to find out how they differ or have in common. Finally, cost/benefit analysis is used to determine the cost of the risks as compared to the benefit to the company.

The process assigns a value or rating to the risk identified. The rating helps to compare every risk with the other risks and give a quick for making decisions over the risks. Quantitative indexing is preferred to qualitative assessment (Turner & Gelles, 2003, p89). Quantitative ranking could be used to create cross reference matrices for all the risks involved in the new project. From the matrices, the risks can be categorized according to their effect on the project, for example, the classes may include minor, intermediate or severe. Such classes give a quick ways of making decision over the risks.

Assessment of project risk can suffer from oversimplification. The qualitative approach to assessing the risks may seem to be easy but may lead to over simplification of the risks. For example, a risk that is classified as moderate does not contain features that are unique to it. On the other hand, use of quantitative method gives more details but is more complex. Numeric values and probability distribution are use in quantitative assessment.

For the new project to be successful, risk identification and assessment is not complete. Risk control is the step that has direct effect on successful risk management. Risk control is used to mitigate the effects of the identified risks according to the risk assessment (Graham & Kaye, 2006, p71). Successful use of risk control counters the risks and increases the chance for the project to be successful. In addition, risk control measure offer guideline to handle similar risks in the future.

Risk control can involve threat reduction, failure prevention, consequence mitigation, probability reduction and vulnerability reduction. Risk control depends on the project and the risk involved. In practice, the company can move from risk identification to control but this is not advisable (Graham & Kaye, 2006, p91). Risk assessment helps to decide on the resources that should be used in risk control. In risk control, the company may decide to avoid the risk, reduce risk, transfer the risk to another body or absorb the risk through contingency plans.

Risk management is very important in project planning and implementation. As a company plan to implement a new project, the project may encounter various risks. Risk management in such a project will involve risk identification and definition, risk assessment and risk control. Techniques in risk identification help to point out the possible risks to the project. Risk control on the other hands uses the information in risk identification and assessment to mitigate the risks.

Abkowitz, D. 2008. Operational Risk management: A Case Study Approach to Effective Planning and Response . John Wiley and Son. New York.

Bilal, M. 2003. Risk Analysis in Engineering and Economics . Chapman &Hall/CRC. New York.

Chris, C. & Stephen, W.2002. Managing Project Risk and Uncertainty . Wiley & Sons, Ltd.

Culp, W. 2001. The risk management process: business strategy and tactics . John Wiley and Sons. New York.

David, T., 2003. Project Success Through Project Risk Management. Pricewaterhouse Cooper. Nils, B., Bent, F. and Werner R.2002. Big Decisions, Big Risks. Improving Accountability in Mega Projects. Transport Policy, Vol. 9 Issue 2.

Evin, J.2000. Project Risk Management: Perception and Reality , Galorath Incorporated Internet.

Glenn, K. 2000. Risk Modeling for Determining Value and Decision Making . Chapman & Hall/CRC.

Graham, J. & Kaye, D. 2006. A Risk Management Approach to Business Continuity: Aligning Business Continuity with Corporate Governance. Rothstein Associates Inc. London.

Royer, P. 2001. Project risk management: a proactive approach . Management Concepts. Manchester UK.

Turner, J. & Gelles, M. 2003. Threat assessment : a risk management approach. Routledge. New York.

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Risk management involves identifying, assessing, and controlling threats to an organization’s capital and earnings. These threats could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. An essay on risk management might cover strategies to mitigate risks, the impact of risk management on business performance, and the evolution of risk management practices over time. This topic might also touch on various risk assessment models, the ethical aspects of risk management, and case studies illustrating the consequences of inadequate risk management. We have collected a large number of free essay examples about Risk Management you can find in Papersowl database. You can use our samples for inspiration to write your own essay, research paper, or just to explore a new topic for yourself.

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Tools, Technologies and Training for Healthcare Laboratories

• Risk Management

The Risk Management Process

A whole host of Risk Management tools, techniques and terminology are headed for the laboratory. New standards and guidelines will make heavy use of these concepts in coming recommendations for laboratory conduct. Do you know what Risk really is? Do you know what Risk Management really means? Dr. Westgard explains some of the words and meanings of this new movement. (Preview)

• What is Risk?
• What is Risk Management?
• What's the Point?

James O. Westgard, PhD and Sten Westgard, MS

We want to be upfront with our concern about the application of risk management in healthcare laboratories. We agree with the principles of risk management – to prevent problems from occurring. It would certainly be ideal if errors can be prevented by manufacturers in their design of analytic systems and minimized by built-in controls and instrument checks, but laboratories are still responsible to “verify the attainment of the intended quality of test results,” according to ISO 15189 [ 1 ]. We think that means Statistical QC should be a major part of any analytical QC plan, and we have reservations about the practice guidelines that are emerging, particularly in the US where the motivation has been to reduce the amount of QC performed, rather than to optimize QC to “verify the attainment of the intended quality of test results.”

When the reports of the Institute of Medicine, To Err is Human [ 2 ] and Crossing the Quality Chasm [ 3 ] were issued in 2000 and 2001, resp., both the public and healthcare professionals alike were shocked by the frequency and severity of medical errors. That heightened awareness motivated the healthcare field to search for new tools to combat and prevent medical errors. Risk Management became one of the new tools to address the problem.

In healthcare, the Joint Commission recommended the use of risk management as part of the Patient Safety Movement. Its accreditation guidelines for 2002 included a requirement that healthcare organizations should perform at least one Failure Modes Effects Analysis (FMEA) each year [ 4 ]. Also in response to patient safety issues, the Institute for Healthcare Improvement (IHI) began providing education, training, and support for FMEA via its website [ 5 ]. In addition, the Veterans Affairs National Center for Patient Safety supported the use of FMEA throughout its healthcare institutions through the US [ 6 ].

Finally, still another thread of history helped bring Risk Management into healthcare institutions - global standards courtesy of ISO. Long accepted by industry, ISO sets rigorous guidelines for processes and products marketed worldwide. Adherence to ISO standards is often a de facto requirement for businesses to compete globally. As ISO standards were expanded and applied to more and different segments of industry, they developed standards for Risk Management in Medical Devices (ISO 14971)[ 7 ]. The medical device industry, already an industry where litigation worries mandated a robust analysis of potential design flaws and device hazards, found that the Risk Management techniques married well with their existing efforts to improve quality. From the medical device industry to the medical device marketplace was only a small step. Already ISO 15189 had specified particular requirements for quality and competence in medical laboratories. A further standard, ISO 22367 [ 8 ], specifies techniques for the “Reduction of error through Risk Management and continual improvement.”

For laboratories outside the US, ISO standards often replaced, supplemented, or substituted for local government regulations. Some countries simply point to ISO standards and adopt them in their entirety for accreditation of medical laboratories. In the US, however, ISO standards have not been widely adopted because the CLIA regulations have been dominant. With the CLIA Final Rule in 2003 and the subsequent proposal for "Equivalent Quality Control” practices, the door opened wide for alternative quality regulations. Faced with scientific and professional debate about the adequacy of the new EQC guidelines, CLSI began to develop an alternate approach for defining an “Analytical QC Plan” based on risk management guidelines that adhered to the ISO standards. These CLSI guidelines are intended to supplement, if not replace, the CLIA guidelines for EQC. CMS will decide whether the new Risk Management-based QC guidelines can be used to provide "equivalent quality" testing.

We Invite you to read this Complete Article

This entire essay, plus many others covering Risk Management concepts, techniques, and implementations, is available in the online course Introduction to Risk Management . You can register and enroll at http://www.westgard.org for immediate access, or you can purchase the course through our online store .

• "Westgard Rules"
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Risk Management Planning Process

Introduction, risk management planning in the fire and rescue services, integrated risk management plan, risk reduction, works cited.

Planning refers to arrangements made in advance to cater for some future event. Risk management planning therefore, is an outline prepared by project managers to foretell risks, to estimate their likelihood of occurring and to find ways of counteracting them when and if they do occur. A risk is any form uncertainty or incident that will cause a negative or positive impact on a project’s goals if it occurs.

Good project managers should always keep watch on their respective project progresses so as to counter possible risks as they can arise at any stage of the project’s implementation. Therefore a risk management plan should constitute a breakdown of probable risks of both low and high impacts to the project. It should also include a strategy for alleviating the risks in order to aid the project from failing to take off or prosper should they occur.

The management of a risk plan must also keep on updating to avoid its analysis from being stale and not well effected (Myron, 28). In other words, a good risk management plan should not be static but rather flexible to accommodate the ever changing environment.

Because risk management planning is an ongoing exercise for project or programme managers, it should therefore have an outline of activities and processes of how they can be carried out. The outline can be drawn as indicated below;

• First of all there is the identification of the possible risks. These are uncertain events that could happen.
• What is the probability that they can occur?
• Analysing the risk and its effects on the project then making it a main concern. In other words, what measures of impact they could have if they occur?
• Creating and implementing risk alleviation or recognition measures.
• Keeping track of risks and risk alleviation execution plans.
• It makes sure that the risk information is availed or provided to all project or programme levels to avoid misinformation.
• Finally, revelation of the risk or an outcome that cannot be avoided can be experienced.

The final stage refers to the actual occurrence of the risk, and this cannot be escaped but rather felt. This is a milestone which will aid in the measurement of the premeditated actions to know if they will happen. In most cases, it is just a clear-cut cost versus benefits method.

All fire and rescue service providers world wide provide safety measures to individuals and corporations at all times. This is the most common area that deals with many risks and uncertainties in their day to day operations. To manage these activities, there is always a laid down procedure of events or steps to be followed in case the risk of fire or an accident occurs. These procedures are documented in their risk management plans and keep on changing or being updated every now and then due to changes in technology and our day to day activities.

Risks that are common in this area are mostly fire, building collapse and road accidents. Taking a look at fire uncertainties in the United Kingdom (UK), “new legislation has provided Fire Authorities with both the flexibility and more recently the statutory responsibility to focus greater resources into the prevention of emergencies rather than simply responding to them” (Isle Of Man Fire & Rescue, 201). This shows that the probability of these risks occurring is between 0.5 – 1.0 therefore a lot of emphasise should be put on them when drafting a risk management plan. For example, Fire and Rescue Services (FRS) in the UK attended to over 877, 000 hazardous cases of fire or fake alarm occurrences in 1 year ending on 30 th September 2006. This was reported to be a minor increase on the preceding 12 months. In the statistics, fires in dwelling places were shown to be the lowest in a period of 25 years (56,400, down by 2%). “Fires in other buildings including workplaces and areas where people gather became lowest since 1963 (down by 7% to 33,200) and road vehicle fires fell (by 9% to 60,600) to their lowest total since 1990” (Bugbee, 78).

In the case the fire risks, the English authorities dealing with Fire and rescue services have now a vast array of legislative duties to perform and they include

• Promotion of safety measures concerning fire
• Guard people and property against fire and fight fires if they occur
• Provide rescue services to individuals involved in road travel collisions (accidents).
• Handle other definite emergencies such as terrorism and flooding.

Based on the above measures, the fire and rescue services have been caught up in the process of edification individuals and corporations on the ways of safety promotions at home and work or office environments. These include the way safety precautions should be taken when in an individual’s kitchen or office. The Fire Rescue Services (FRS) through county councils that govern fire operations in their areas of jurisdictions have implemented policies ensuring that all fire risks are mitigated efficiently and in a cost effective way. They conduct this in conformity to the Fire and Rescue Act 2004. The Fire and Rescue Services Act 2004, corresponds to an all-inclusive reform of the legislative structure. This act, places prevention at the core of all fire and rescue activities because it centers on the promotion of societal protection and mortality prevention. In addition to this, the act addresses the issues of lessening injuries and an overall fire impact reduction. This act is initiated by several legislative bodies/groups together with the local government.

Investigations done have found out that most risks associated with fire occur due negligence by many people. Cigarette smokers leave cigarette butts burning after smoking and throw them in forests or road sides while driving. Most fires are caused by electrical appliances and gas appliances like cookers, iron boxes and other materials which when mishandled cause these risks. When it comes to driving and traffic collisions, most cases involve drivers being under substance influence when these accidents occur. Motorists have always been warned against drunk driving. At the same time, taking precautions and avoiding talking on mobile phones while driving. One can loose control due to lose in concentration hence causing an accident that may lead to a risk of losing ones life. Speed limits have also been set on road sides displayed on road signs to alarm drivers to drive at recommended speeds and avoid over speeding.

The fire and rescue services authorities have guarded individuals and property by providing written instructions on most home appliances on how to prevent the risks. If the risk of fire does happen in the home, fire extinguishers are available for home and small office users as the first aid to mitigate the problem. When this fails, the fire and rescue services will come in and help in the process of solving the problem hence dealing with the situation as it may be. Their first response to the situation is, to save human life and stop the spread of the fire to other property. There are laws which govern the fire and rescue services in dealing with these risks. When this risk does occur, their priority task is to save life and property, but an investigation will be carried out to determine the cause of the risk as required by the law. If it is deliberately set up, then the person responsible will be answerable to the law.

In all these, the evaluation of risks should be done putting in mind the costs involved financially or otherwise. Mostly, risks that occur, for instance fire, have a pattern of occurring and therefore require regular planning and mitigation measures to be undertaken if the do occur. The cost and effect of these risks should be indicated or estimated in a good risk management plan. The costs may include the tools and instruments used in fighting fires and rescue operations and general resources which may be available or are required in order to facilitate the rescue operations or risk mitigations. Training of personnel is another task that should be put in mind when dealing with the costs of implementing a good risk management plan.

When a risk does occur, it will have either a positive or negative impact to the project. In this case (fire), a positive effect will only be, it’s being contained in its early stages to prevent damage to life and property. This should be done according to the available legislative measures for a standardized mitigation strategy. On the other hand, a negative impact will often result in loss of life and property. Therefore, measures should be taken to plan for these risk impacts on the society and these can be done through getting insurance policies against fire or accident and even life assurance. Fire prevention measures can again be taught to individuals through seminars or organising special events by the fire and rescue service departments. This is important as it informs the public not only about fire hazard mitigation measures but also about how to act in the event of a fire hazard. They also help in sensitizing the public on the necessary fire fighting equipments they need to have in their dwelling places.

In the case where by a risk has occurred, measures of dealing with the risk should be taken in urgency to show relationship of the risk and its costs during a particular time or stage. Delays in solving the risks, for instance a road collision or fire will result in more risks hence leading to a wider negative impact on the community and the project managers. Therefore, when drawing a fire and rescue management plan, the emergency services should always be given the first priority in order for it to provide speedy and reliable services during disaster times. A contingency plan should again be drawn to indicate the steps to be taken in solving or counteracting the risk.

Project managers in the fire and rescue services should always keep in mind the fact that the risks that face them do not have a particular time or date stated for them to happen. A good risk management plan therefore, should have a structure of how a risk alleviation plan should be undertaken. This can be in form of a particular set of steps to be followed and can be arranged in the form of hours or days according to the disaster at hand. For instance, the earthquake disaster that took place in Haiti on 12 th January, 2010 was so massive that rescue operations of the country could not do anything but rather depend on the whole world to come and lend them a hand. This also indicates that a risk can not be quantified before it really occurs.

A good risk management plan should therefore have in it information that is up to date on matters that concern this risk and should be availed to the concerned parties at all levels of a project. In the case a fire and rescue service provider, information should be well distributed to individual’s homes and corporations about the risk of fire and its alleviation strategies in order to make the community a safer place. They should again include all stakeholders in order to come up with viable strategies that are not only cost effective but also compliant to legislative requirements. The cost of carrying out these activities should therefore be included in the risk management plan.

In order for the fire and rescue services to be successful in carrying out their activities, property owners are advised to provide the “police, fire departments, and emergency response teams with the layout of their facility, properties of hazardous waste handled at the facility and associated hazards, places where facility personnel would normally be working, entrances to roads inside the facility, and possible evacuation routes” (U.S. Fire Administration/Technical Report Series, 371). These would lessen the risk of fire spreading to adjacent buildings in case of a fire outbreak. It could also help to facilitate easy access to the buildings or facility in question. The facility layouts would also be helpful to rescue operations in general.

To come up with viable and cost effective measures for controlling such hazards an Integrated Risk Management Plan should again be initiated in the risk management planning process. Integrated risk management is a “framework that delivers on the commitment to strengthen risk management practices across many levels in organizations and the public as a whole” (Mathews, 243). This is necessary in many hazardous situations as it plans for an effective and efficient fire and rescue service. This is because it reduces fire occurrences together with its overall effects. “IRMP also reduces life loss, accidents, reduces severity of hazards, and safeguards the environment. The integrated risk assessment plan also identifies risks of these hazards in a given area and carries out the evaluation for the initiation of preventive measures” (Mathews, 42).

In order to come up with a successful hazard reduction method in the modern world, there is an integrated move towards managing hazards. This move joins together fire and other safety edification for the sole purpose of preventing recognized hazards from occurring, “fire protection for businesses and commerce (to ensure they comply with fire safety legislation) and effective emergency response ensuring that there is the right resources in the right places and that the staff is effectively trained” (Mathews, 42). The IRMP (Integrated Risk Management Plan) is one of the responsibilities of the Fire-Authority and is created by the council’s FRS (Fire and Rescue Service). It is again an assessment and a tactical instrument in advising the community on the possible consequences of recognized hazards threatening everybody in the community. It also informs the public how the fire rescue service intends to lessen and manage the hazards by employing traditional and inventive deterrence and intervention strategies. “This ensures that, the right resources are in the right place at the right time while enabling firefighters to respond to emergencies in a flexible and effective way” (Lee, 201).

To get rid of fire outbreaks in buildings for example, identification of the sources of ignitions and reducing them significantly should be done. Fuel for these fires should be identified and appropriate actions which include proper storage and removal them done. Ways of handling the issues of oxygen or aeration is supposed to be considered as well. Measures of ignition reduction are as follows; putting policies in place that encourage no or safe smoking (if there should be any smoking it should be done away from the building and in safe smoking zones), items like ash trays should be supplied to institution where there are a lot of people for making sure that cigarettes are properly put out after smoking. Again making certain that electrical appliances function properly and according to instructions given by the suppliers and finally making sure that all construction work involving electrical usage is carried out in a proper way that does not put the buildings at risk is helpful.

The risk reduction measures in dwelling places are supposed to entail “provision of early fire warning using automatic fire detection, reducing fire by removing combustible materials, controlling the number of people in the accommodation centre and increasing awareness together with student training” (Jones, 69). In addition to this, buildings need decent fire warning systems that electronically detects fires. Recommendations for these systems are that they should be fitted with smoke signals and a control panel for better monitoring. The issue of false alarms that are activated maliciously should be addressed as well. To tackle this problem, activation should be monitored to make sure only genuine alarms are activated. All these risk reduction measures must comply with the fire and rescue services act 2004.

Fire fighting equipments in buildings are needed for extinguishing any kind of fire that could possibly erupt. The fire fighting equipments should comprise of adequate fire extinguishers put in strategic places for easy accessibility. These must have signs showing where they can be found and notices showing the directions of usage and the kind of fires for each specific extinguisher. Horse reels are also required which often need special people trained to handle them. The extinguishers again are supposed to be checked regularly to make sure they are operational and for refills.

Another important measure is the placing of notices and signs which are essential for guiding people to ways of escape, location of fire extinguishers and warning systems. The buildings are supposed to be equipped with this as they are required by the health and safety regulations. These signs are to be in picture form to enable everyone to know the meaning easily. All these are supposed to be strategically placed for better viewership and understanding.

When it comes to risk management planning, budgeting is an important aspect that should not be sidelined. All the resources that are involved in the fire and rescue services have a monetary aspect attached to them. The fire fighting equipment, labour costs and even risk alleviation training materials constitute costs which should be included in the risk plan in advance. Risks can not be measured in advance but the costs can be calculated basing on past occurrences. This will help the project planners in the long run to realise the efficiency of a risk management plan when it succeeds. Budgeting should therefore be done by experts in the field of planning.

Risk management planning should be thoroughly carried out and implemented for a good project to succeed. The decline or lessening of risks and uncertainties will have a positive impact on the project out in the long run. Strict adherence to the set guidelines in the risk management plan should be encouraged by programme managers at all costs. Any decision which they may undertake can determine the future of a project (Williams, 2000). Risk analysis is categorised into three groups; these are low impact, medium and high. From this kind of rating, the most devastating ones are the medium and risk. Therefore during planning, these two should be given the first priority. A good risk analysis and mitigation process should be presented in tables to make it easier when conducting assessments. All in all a risk assessment should serve its purpose which is to identify the risks, evaluate them so as to aid in the process of decision making in matters dealing with safety to individuals and property.

Bugbee, Amos. Fire rescue management . London: Oxford university press, 1998. Print.

Isle of Man Fire & Rescue. Fire and Rescue Services. Journal of fire and Rescue Services, 4.2 (2010): 108-388. Print.

Jones, Daniela. Fire risk reduction . New York, NY: Oxford University Press, 2007. Print.

Lee, Johnson. Fire prevention measures. Nairobi: East African Publishers, 2008. Print.

Mathews, Daniel. Integrated Risk Management Plan. International journal on fire management 7. 1 (2002): 36-72. Print.

Myron, Stanley. Quality for Assessing and Reducing Risk , Washington: longhorn Publishers, 2007. Print.

U.S. Fire Administration/Technical Report Series. Fire and Rescue Services. Fire hazard prevention , 6.1 (2003): 362- 384. Print.

Williams, Ben. Risk Management Planning . London: Penguin Press, 2000, Print.

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