What is risk management?

No one likes to focus on the negative, or constantly point out what might go wrong in life. But, when it comes to business, discussing possible threats to your organization is necessary to ensure operational continuity and keep your people and property safe.

In this post, we’ll show you how you can reduce or avoid business risks by creating a foolproof risk management plan. Keep reading to learn:

• What risk management is and why it’s important
• The 4 steps to risk management planning
• How to approach risk management in the workplace

What is risk management?

Risk management is the process of identifying risks to a business, assessing them, and establishing a plan to manage them. For example, a risk to your business might be bad actors who, without the proper safeguards in place, can steal your intellectual property, or cause harm to your people and workplace.

The goal of risk management isn’t to avoid risk entirely. Instead, it's to identify potential problems before they occur and have a plan for monitoring and addressing them. There are four essential steps to the risk management process:

1. Risk identification
2. Risk assessment & prioritization
3. Risk mitigation planning
4. Risk monitoring

We’ll dive into each of these steps in more detail later in this post.

Why is risk management important?

Risk management can help your business plan for unforeseen incidents and circumstances. With a game plan, you can manage, limit, or even mitigate costly setbacks. It can also understand which risks are actually worth taking to enable business success. Here are some additional benefits to establishing a risk management plan:

• Decrease legal liabilities
• Demonstrate corporate social responsibility
• Protect people and assets from potential harm
• Ensure the business is appropriately insured

4 steps to risk management planning

You now know what risk management is and why every organization should take it seriously. In this section, we’ll dive deeper and outline the four steps to risk management planning. By following these steps, you can help keep your business, properties, and employees safe.

Step 1: Risk identification

By knowing the risks your organization faces, you can begin the process of managing them. In general, business risks are divided into the following four categories:

• Hazards: These are risks that could hurt people or cause physical damage to your organization’s property. Chemicals, machines, fires, and other natural disasters fall into this category.
• Financial risks: These are risks that every business faces. Decisions about suppliers, distributors, mergers, and pricing changes are examples of financial risks.
• Operational risks: These are risks caused by ineffective people, processes, systems, or outside events. Employee mistakes, computer system failures, and cyberattacks are examples of operational risks.
• Strategic risks: These are risks that threaten a business’s ability to reach its goals. Changes to the economy or business environment, poor business decisions, and inaccurate forecasts are examples of strategic risks.

Go through each category and identify all of the possible threats your organization faces. Be sure to create a list of these risks so you can use them in the next step.

Step 2: Risk assessment & prioritization

Now that you know the possible risks your organization faces, you can assess and prioritize them. This will help you do two things. First, it’ll help you better understand the impact the risks might have on your business. And second, you’ll be able to identify which risks to prioritize first.

Use a risk assessment matrix to score each of the threats you’ve identified. A matrix will help you evaluate how likely a threat is to occur and its potential impact on your business. It should look something like this:

Then, go through each of the risks you identified in Step 1 and assign it a score. Once you’ve completed this step, you’ll know which risks to focus on first (high and medium high risks), and which you’re probably OK to focus on next (medium, low medium, and low risks).

Remember, even the largest companies in the world have limited resources for responding to business threats. Having a sense of priority will keep your organization focused on the risks that pose the greatest threat to your operations, workplace, and employees.

Step 3: Risk mitigation planning

In this step, you’ll outline preventative measures for each of the identified risks. You’ll also want to establish a contingency plan in the event that the threat actually happens.

For example, if data theft is a risk, you might implement preventative measures including increased workplace security to keep your organization’s physical computers safe, anti-phishing training for employees, and encryption of company data. As a contingency plan, you might establish processes to notify your customer base and begin to contain the breach. You might also involve law enforcement and conduct a post mortem on the breach.

If meeting compliance requirements is a risk, your preventative measures might include additional security, including ID checking, block lists, and visitor passes to protect employees and safeguard the workplace. In this case, a workplace platform that supports visitor management can help minimize risk, retaining the right amount necessary to invite people onsite and spur innovation. As a contingency plan, you might establish data backup and disaster recovery plans, and ensure the right folks in your organization are trained up on both.

With these strategies in place, your business can respond to threats and emergencies in a manner that’s calm, organized, and more likely to be successful during stressful times.

Step 4: Risk monitoring

It’s not enough to come up with a plan. In this final step, you’ll monitor the preventative measures your organization put in place. Being proactive about monitoring how well your risk mitigation strategies are working is a necessary step to protect your business, its assets, and employees.

If one of your risk mitigation strategies begins to slip or fail entirely, your organization can implement the appropriate contingency plan.

Risk management in the workplace

Workplace risk management is a key component of your organization’s overall risk management plan. Be it a traditional office, lab, manufacturing facility, or industrial plant, the workplace is a space for intellectual property, technologies that support business operations, and, most importantly, employees. It’s important to keep everything and everyone within it safe.

Here are some of the common threats to prepare for that can impact the workplace:

• Natural disaster or extreme weather
• Theft of physical or intellectual property
• IT failure of a business-critical system
• Cyberattack
• Utility outage
• Executive protection
• Health threats
• Brand and reputation crises
• Supply chain disruption
• Bad actors

To dive deeper into any of these workplace threats, check out this blog post.

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Managing threats to your organization’s livelihood isn’t a particularly fun process. But, to remain in business and ensure your organization can thrive in the years to come, establishing a risk management plan is essential. Whether your team is responsible for overseeing the whole process or just some of it, understanding the basics of risk management and how to mitigate threats to your organization are important steps to take to protect your business and its people.