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.
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 goal of the first risk assessment step is 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.
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, or aerospace and defense, face many liability risks due to various regulations and strict compliance requirements.
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 and Bayes Nets, Checklists, Decisions Tree, Influence diagrams, Quality evaluation of the data, Expert judgment, Meetings, Information system for project management.
- Risk response planning: Quality evaluation of the data, Root cause analysis, Define 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.
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 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.
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.