Do you know that some amusement parks make people sign consent forms? The form states that the park authorities will not be liable for any unexpected injuries or accidents to the visitors, who will enter at their own risk. When it comes to businesses, risks are inevitable. That’s why organizations always have risk management plans to manage and tackle potential threats.

Read on to see how risk management planning can be a game-changer.

What Is A Risk Plan?

Before we fast forward to risk management planning, let’s understand what is ‘risk’ and what ‘risk management’ entails. Risk is the possibility of an unexpected or negative outcome. It involves uncertainty that’s caused by internal and external vulnerabilities. Risk management is a framework that helps in the identification, analysis and response to risk factors such as management errors, financial uncertainty, legal liabilities, security threats and others.

Even the most perfectly planned project can face unexpected threats, which is why you need an effective risk management plan. In a nutshell, a risk plan is a written document that defines an organization’s risk management process. Risk management planning helps identify potential problems that may hamper your project’s progress.

Let’s look at some of the most common types of risks that businesses encounter:

  • Business risks: 

Usually, business risks are taken by ventures to maximize shareholder value and profits.

  • Non-business risks:

They aren’t under a firm’s control and are influenced by political, social and economic imbalances.

  • Internal business risks:

 They arise because of inefficient management in businesses.

  • External business risks: 

They arise because of external environments and factors.

  • Financial risks: 

Risks associated with any kind of financial transaction such as company loans.

  • Market risks:

Risks that arise because of instability and losses in the financial markets caused by changes in stock prices, interest rates, currencies or other factors.

How To Develop A Risk Management Plan?

A good risk management plan doesn’t have to be resource- or cost-intensive. A little restructuring and a strong understanding of the organization’s needs can prepare you better. Here’s how you can effectively develop a risk management plan:

  1. Identify The Risks:

There are several types of risks involved in businesses at any given point. Labeling makes it easier to tackle or avoid them. There are various methods available for risk identification.

  • Interviews: 

Set time aside to meet everyone involved in a project and gauge their insights into potential threats.

  • Brainstorming sessions: 

Group meetings and brainstorming sessions are among the best ways to identify future risks as multiple people analyze and offer their insights.

  • Risk checklists: 

Organizations often use risk checklists to track the kinds of risks they are likely to face or have already faced.

  • Assumptions analysis: 

Our assumptions are often rooted in biases, so we must identify biases that prevent us from recognizing potential threats.

  1. Analyze The Risks:

Once the risks are identified, they need to be assessed. It’s important to map different risks to the underlying factors. Your risk analysis should answer the following questions:

  • What is the likelihood of these risks occurring?

  • How will the risks impact the organization?

Risk analysis helps create appropriate risk responses depending on their severity and available resources.

  1. Evaluate The Risks:

Many organizations use risk maps or visual representations of risk factors that detail which risks are severe and/or frequent. When you rank risks in order of their severity and urgency, you prioritize and solve them in that order. For example, risks causing minor inconvenience don’t necessarily need intervention from the top management.

  1. Identify Preventive Strategies:

You can respond to different types of risks in multiple ways. Here are a few preventive strategies that’ll help you minimize the consequences.

  • Avoid: 

You eliminate a particular risk by getting rid of its source. For example, anti-discrimination policies make it mandatory to protect employees.

  • Mitigate: 

You take action to reduce the risk. For example, purchasing superior quality tools will reduce workplace safety risks.

  • Transfer: 

You transfer the risk to a third party. For example, you get car insurance in case of unforeseen accidents or damages.

  1. Create A Contingency Plan:

If risks are unavoidable, then you’re forced to accept the potential fallout. Contingency plans can help you navigate highly precarious situations. You can develop a contingency plan by following these steps:

  • Make internal changes: move around team members, divert the budget or revise project deadlines.

  • Understand who needs to be notified about change: communicate with everyone so that there aren’t any disagreements later.

  • Create a plan of action that’ll help you respond to unexpected events: a checklist can help you stay focused during crises.

It’s important to understand how your organization functions before you implement a risk management plan. Harappa Education’s Navigating Workplaces course is designed to help you understand and manage your workplace culture and people. The Stakeholder Map method will help you identify decision-makers. Communicate, collaborate and tackle every risk as a powerful team!

Explore topics such as Risk ManagementProcess of Risk Management, How to Manage Crisis & Contingency Planning from our Harappa Diaries section and create an effective risk management plan.

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