Risk Management
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Risk Management
The five-step risk management process
- Identify the risks.
- Analyze the likelihood and impact of each one.
- Prioritize risks based on business objectives.
- Treat (or respond to) the risk conditions.
- Monitor results and adjust as necessary.
Risk identification
Risk scenarios that could have a positive or negative impact on the organization's ability to conduct business. As noted above, the resulting list should be recorded in a risk register and kept up to date.
Risk analysis
The likelihood and impact of each risk is analyzed to help sort risks. Making a risk heat map can be useful here, as it provides a visual representation of the nature and impact of a company's risks. An employee calling in sick, for example, is a high-probability event that has little or no impact on most companies. An earthquake, depending on location, is an example of a low-probability risk with high impact.
Risk evaluation
Techniques include one or more of the following:
Risk avoidance: The organization seeks to eliminate, withdraw from or not be involved in the potential risk.
Risk mitigation: The organization takes actions to limit or optimize a risk.
Risk sharing or transfer: The organization contracts with a third party (e.g., an insurer) to bear some or all costs of a risk that may or may not occur.
Risk acceptance: A risk falls within the organization's risk appetite and tolerance and is accepted without taking action.
Risk treatment
This step involves applying the agreed-upon controls and processes and confirming they work as planned.