There are core principles of risk management that regardless of the type of risk, are at the forefront of risk managers’ brains. Reinforcing these principles can help demonstrate how a robust risk management program supports achievement of the organization’s mission and vision.
Risk Management Defined
Risk management is the process of minimizing or mitigating the risk, generally, results from uncertainty. In organizations, this risk can come from uncertainty in the marketplace. Ideally in risk management, a risk prioritization process is followed in which those risks that pose the threat of great loss and have a great probability of occurrence are dealt with first.
10 Principles of Risk Management
The following 10 principles of risk management are used in almost all types of risk management.
Every organization is affected to varying degrees by various factors in its environment (Political, Social, Legal, and Technological, Societal, etc.). For example, an organization may be immune to change in import duty whereas a different organization operating in the same industry and environment may be at a severe risk. There are also marked differences in communication channels, internal culture, and risk management procedures. Risk management should therefore be able to add value and be an integral part of the organizational process.
Involvement of Stakeholders:
The risk management process should involve the stakeholders at each step of decision-making. They should remain aware of even the smallest decision made. It is further in the interest of the organization to understand the role the stakeholders can play at each step.
When dealing with a risk it is important to keep the organizational objectives in mind. The risk management process should explicitly address the uncertainty. This calls for being systematic and structured and keeping the big picture in mind.
In risk management communication is the key. The authenticity of the information must be ascertained. Decisions should be made on best available information and there should be transparency and visibility regarding the same.
Roles and Responsibilities:
Risk Management must be transparent and inclusive. It should consider the human factors and ensure that each one knows it roles at each stage of the risk management process.
Support structure underlines the importance of the risk management team. The team members must be dynamic, diligent, and responsive to change. Each member should understand his intervention at each stage of the project management lifecycle.
Early Warning Indicators:
Keep track of early signs of a risk translating into an active problem. This is achieved through continual communication by one and all at each level. It is also important to enable and empower each to deal with the threat at his/her level.
Keep evaluating inputs at each step of the risk management process – Identify, assess, respond, and review. The observations are markedly different in each cycle. Identify reasonable interventions and remove unnecessary ones.
Brainstorm and enable a culture of questioning, discussing. This will motivate people to participate more.
Be capable of improving and enhancing your risk management strategies and tactics. Use your learning’s to access the way you look at and manage ongoing risk