Risk Management

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What is Risk Management?

TrustCloud has curated a guide to Risk Management Best Practices. 

Organizations are constantly evaluating risks as part of their day-to-day operations.

Should we expand the product line? Should we hire this quarter? Should we buy the XYZ tool? Should we move to a cloud hosting solution? Should we expand to an international market?

These are typical questions that organizations face and answer every day. Risk management is the evaluation of the potential risks that could arise from making any given decision.

Formally, Risk management is the process of identifying, analyzing, and responding to risks. It is an attempt to control future outcomes by acting proactively rather than reactively. The potential losses that are experienced by failing to act proactively include, but are not limited to:

  • Financial losses such as fines and liability suits
  • Operational losses such as strikes or mass resignations
  • Reputational damages such as bad press

Why is risk management important?

Effective risk management offers the potential to reduce both the possibility of a risk occurring and its potential impact. Its importance lies in the fact that it empowers the organization to proceed cautiously and make sound decisions.

Risk management is the best way to prepare for future casualties that may come up as part of progress and growth. And you need to be prepared for your journey.

Best practices for an effective risk management program

There is a lot of guidance on what an effective risk management program looks like. All this guidance has a common point of focus that is absolutely necessary when implementing a risk management program.

Risk Identification

You must know what risks you are facing before moving forward. Risk identification involves brainstorming with key personnel or all personnel. It is a good way to identify the various sources of risk by asking people about their areas of worry.

Develop a process to compile all the risks identified before proceeding to the next section.

Risk Analysis

Each risk on your list must be analyzed for resolution. To effectively do the analysis, each risk must be analyzed for its potential impact on the organization. There are many strategies for making this analysis, such as using a probability of occurrence and calculating the risk impact based on the probability.

As your list is analyzed and prioritized, the resolution activities can start.

Risk Response or Remediation

Depending on the impact of each risk, the organization may decide whether remediation activities are worth it, possible, or required. The organization must document the remediation plan for each risk on the list. Risk responses are usually classified as follows:

  1. Avoidance: (remove the risk): This is always the best strategy, but it is not easy to achieve. Often, the only way to remove the risk is to remove the risky activity, and that’s not always feasible.
  2. Mitigation: reduce the impact and/or likelihood. If you cannot remove the risk, you can decrease it by lowering the possibility of its occurrence.
  3. Transfer: You can transfer the responsibility for a risk to someone else. This usually occurs through a contract agreement. For example, insurance contracts are used to transfer risk ownership.
  4. Acceptance: In some cases, the risk and impact are low enough that an organization chooses to accept a risk.

Each risk remediation plan must have an assigned owner to ensure that the response activity is carried out. Risk management is a continuous activity, so make it a habit to ask your personnel about their concerns and monitor the remediation activities.

And these are the best practices to manage risks!

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