Risk management is the process of identifying potential problems that could damage the performance and profitability of a business. Without a risk management strategy in place, companies open themselves up to danger and when issues do occur, they are completely unprepared to deal with them.
There are a number of things that can affect the capital or earning potential of a business including poor financial management, technology problems, inefficiencies in business processes, legal challenges, or even natural disasters. Every business is at risk from these potential dangers and risk management aims to predict what the problems are and take steps to tackle them before they cause losses.
Why Is Risk Management Important?
Aside from helping to avoid events that will damage the earning potential of the business, risk management strategies have a number of other benefits.
Creating a safe work environment
Identifying and tackling physical risks around the workplace helps you create a safer work environment for you and your employees. Not only does this ensure that you are compliant with health and safety regulations, but it also has a positive impact on productivity.
Decreases legal liability
Legal proceedings are incredibly expensive and could cripple your business. But a risk management strategy will pick up problems that could lead to legal challenges in the future, allowing you to rectify them and avoid expensive legal problems.
Establish insurance needs
Through risk management processes, you can determine exactly what potential dangers you need to insure against. Making sure that you have adequate insurance coverage is one of the best ways to protect your business.
The Risk Management Process
The risk management process involves a series of steps designed to identify and combat risks:
- Identifying existing risks
- Assessing the risks
- Develop a response
- Create preventative processes to combat further risks
This basic risk management process can manage overall risks in the business but it is also used during the project management process to identify project-specific risks. A good project management company will incorporate risk management strategies into the early stages of planning a project.
For example, many projects experience the risk of losing an important team member. If one person is heavily involved with many aspects of the project and they are hard to replace, this presents a serious risk and the project will grind to a halt if they fall ill or leave the business for any reason.
The risk has been identified and a response must be developed. Speaking to the team member in question to pick up on any potential problems they have with their working environment and their overall job satisfaction can reduce the chances of them leaving.
Businesses must also put a plan in place if they do lose that hard to replace person. This usually involves finding another team member that can be promoted into the role and providing the necessary training to facilitate this. This is a prime example of how risk management strategies can be implemented to tackle a common project management risk.
If you want to protect your business, it is crucial that you implement a wider risk management strategy as well as specific risk management processes during important projects for a better handle on risk management.