What is Risk Management Software? Types, Steps, Tools
The current business landscape is highly unpredictable and exceedingly competitive. Organizations large and small deal with a multitude of internal and external risks, and finding effective ways how to detect, evaluate, and mitigate them has become a key element in achieving consistent business growth.
According to American worldwide management consulting firm McKinsey & Company, 70 percent of senior executives have begun implementing risk management software solutions to better deal with unforeseen problems, such as sudden market developments, changes in legislation and regulation, new technologies, natural disasters, and others.
However, despite the growing adoption of risk management software, there’s still some confusion as to what risk management actually is and why it’s increasingly critical when it comes to maintaining the resilience of an organization.
What Is Risk Management?
Risk management can be concisely defined as the effect of uncertainty on objectives. It involves the identification, evaluation, and prioritization of risks followed by the application of resources to minimize or control their negative impact.
Each organization faces slightly different risks, which could stem from many different sources and include everything from strategic management errors to IT security threats to natural disasters. For this reason, organizations must conduct periodic risk assessments and implement a plan to mitigate the possible disruptions.
What Are the 3 Types of Risks?
While there are many types of risks, the following three types are always relevant:
- Personal Risks: Include the loss of life, injury, and other consequences of unmanaged workplace hazards.
- Property Risks: From natural disasters to theft to cyberattacks, there are many property risks threatening organizations these days.
- Liability Risks: Organizations in certain industries, such as finance, medical, aerospace, and defense, face many liability risks due to various regulations and strict compliance requirements.
Five Steps to Risk Assessment
All risk assessments follow the same basic five steps, even though the steps are sometimes described using different jargon or slightly altered to better meet the needs of various organizations.
- Step 1: Risk Identification. The first risk assessment step aims to identify all risks that might cause harm to the organization and negatively affect its objectives. There are a number of risk identification techniques that can be used to accomplish this step.
- Step 2: Risk Analysis. With risks identified, it’s time to analyze them and determine their likelihood and consequences. At the end of this step, the organization should have a much better understanding of the risks it’s facing and be aware of their potential effect on project goals and objectives.
- Step 3: Risk Ranking. The next step is to rank the discovered risks according to the magnitude of their potential impact. Some risks may have such a huge potential negative impact that they are not worth taking, while the impact of other risks may be negligible.
- Step 4: Risk Response Planning. Starting from the highest-ranking risks, the goal is to come up with a plan that would make it possible to minimize their probability and impact.
- Step 5: Risk Assessment Review. Because organizations are always evolving, it’s necessary to regularly review and update the risk assessment to maintain its relevancy and usefulness.
Why Use Risk Management?
There are many unseen benefits of adopting risk management in an organization.
- Identify Unapparent Risks – Many severe risks in an organization can’t be amassed through textbooks. A proper and comprehensive risk management program leverages a team of experts to identify any severe or non-severe risks and provide a complete understanding of them.
- Reduce Litigation Liabilities – Litigation liabilities are viewed as one of the biggest business liabilities. Hence, reducing it is one of the top priorities of any organization. A proper risk management program helps reduce such risks and makes the company more reliable for investment.
- Better Quality Data – Risk management helps seniors get better quality information which helps them in making more grounded decisions. This is much more helpful when the data is the latest and has not been already used.
- Financial Benefits – Risk is the money center for any organization that directly affects the financial health of the company. By conducting a risk analysis, analyzers can identify the high-frequency events and propose measures to minimize the losses, eventually, saving the company millions of dollars.
- Reusable Information – Risk management helps in identifying the reusable information. Risk management is a collaborative process that requires the participation of many people. The information gathered from the process of developing a risk plan can also be used in other situations that may arise in the future. Thus, saves a lot of time and effort by not starting from scratch again.
Traditional Risk Management VS Enterprise Risk Management:
|Traditional risk management (TRM)||Enterprise risk management (ERM)|
|TRM focuses solely on insurable risks.||ERM looks beyond insurable risks and considers other organizational risks as well.|
|TRM has a reactive and sporadic approach. That means it takes place only after an incident takes place.||ERM has a proactive and consistent approach. That means, it is a continuous process that attempts to predict potential events before they happen.|
|TRM supports a risk-averse mindset, where risk is viewed only as something that can cause the organization to lose money.||ERM supports a risk-taking mindset, where both the ups as well as downs of the risk are considered in order to determine which one should be chosen for growth and expansion.|
|TRM works with a fragmented or siloed approach where each department manages the risks independently and has no communication outside of their respective business units.||ERM works with an integrated or holistic approach where risk management is coordinated throughout the business with senior-level supervision to help better allocate resources and prioritize risks.|
|Risks are mitigated based on each silo’s expertise and decision-making skills with a one-dimensional assessment.||Risks are mitigated in line with an ironclad multi-dimensional strategy on an enterprise-wide level.|
What Are Risk Management Tools and Techniques?
Each of the five steps of risk assessment can be supported by different risk management tools and techniques, including the following:
- Risk Identification: Bow tie analysis, Sneak circuit analysis, Markov analysis, Interviews, Analysis of assumptions and restrictions, Analysis of documents, Hazard Analysis and Critical Control Points (HACCP), FMEA – Failure mode effect analysis, FTA – Fault tree analysis, Quality evaluation of the data, Root cause analysis, SWOT Analysis, Cause and consequence analysis, Cause-and-effect analysis.
- Risk Analysis: Layer protection analysis (LOPA), Bow tie analysis, Root cause analysis, Matrix probability and impact, Checklists, Quality evaluation of the data, Information system for project management, Delphi.
- Risk Ranking: Scenario analysis, Monte Carlo simulation, Bayesian statistics, Bayes Nets, Checklists, Decisions Tree, Influence diagrams, Quality evaluation of the data, Expert judgment, Meetings, and Information system for project management.
- Risk Response Planning: Quality evaluation of the data, Root cause analysis, Defining risk response strategies, Brainstorming, Checklists, Interviews, Analysis of alternatives, Information system for project management, Delphi.
- Risk Assessment Review: Meetings, Information system for project management, Checklists, Reserve analysis, Expert judgment.
What to Expect from Risk Management Software?
Organizations today have many options when it comes to risk management software, and there’s a lot they can expect from it.
- Ease of Use – Modern risk management software typically comes with pre-configured risk, incident, and hazard management templates, making it possible to start using it without any delay. It seamlessly integrates source data from existing systems and aligns enterprise risk management to the organization’s strategy.
- Accuracy and Agility – Risk management software speeds up risk identification and reduces the cycle time and costs of risk assessments while improving resource utilization. This, in turn, drives agility and risk-based decision-making. All organizations that gain the ability to accurately and swiftly identify and manage risks become more competitive and resilient.
- Reporting – Risk management software can automate document collection and allow the organization to dig into reporting and analysis to access real-time risk management information across the organization and view risks by the organization, product, process, or risk category.
- Managing Risk with an ALM Tool – ALM (Application Lifecycle Management) tools encompass requirements management, software architecture, change management, continuous integration, project management, computer programming, software testing, software maintenance, and release management, providing actionable insights and encouraging strong team collaboration across the software development lifecycle.
What is a Risk Management Report?
The risk management report is a summary of the final outcomes of the risk analysis procedure. It consists of many things like evidence of implementation of risk management plans and the results that were received. Typically, it addresses the critical risks, the repercussions they may end up with, as well as the potential future risks that may cause trouble if not paid attention to.
So, what must be included in a risk management report?
- Risk Register – This is the identified potential risk in the organization, the impact it may leave, the probability of it occurring, and how high or low it ranks as compared to other risks.
- Action Plan – This is a detailed description of what the action plan would be to mitigate the risk identified.
- Data Reviews – This is the data collected to be used for assessing the risk.
- Schedule and Updates – This is a schedule that would be followed for the project and a description of the potential changes to it.
- Status – This is basically a comparison of the actual status and the expected status of the project.
Solutions such as Visure Report Manager from Visure, a leading provider of requirements management tools offering a comprehensive collaborative ALM platform, can support risk management by helping deliver the necessary regulatory compliance evidence, requirements specifications, test session summaries, dashboards, or any other required output whenever needed in almost any format, covering all reporting needs of organizations.
With the Visure FMEA extension, engineering teams gain a complete out-of-the-box solution that shows risks and their potential hazards in the project and their corresponding values for detection, severity, occurrence, and any required information such as potential.