A risk management plan is a strategy that outlines how a business can anticipate, predict, and respond to risk. It doesn’t matter if you are a real estate professional, a business owner, or a sole entrepreneur/freelancer, having a risk management strategy in place is absolutely critical to protecting your business interests.
If you want to learn how to develop your own risk management plan (and why you should in the first place), this is the article for you!
According to Business Dictionary, a risk is a “probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.”
Every business or freelancer faces risk. However, adequately preparing for potential risks and continually updating an organization’s risk management plan can help ensure that risks are successfully mitigated, keeping progress on track.
Steps in Risk Management
Broadly speaking, there are five core steps involved in developing a successful and comprehensive risk management plan.
It should be noted that project leads and team members should all be made familiar with any risk strategy that is developed. Additionally, periodic or annual reviews of risk management strategy should be conducted to ensure organizational preparedness is up to date.
Step 1 – Risk Identification
Any risk management plan should start with a thorough identification process in which team members and management identify possible risks and the outcome they may have on a project or overall organizational well-being. Risks that are identified can include industry-dependent and industry-independent risks to cover the wide range of common business risks.
Step 2 – Analysis
Once possible threats have been outlined, the team should identify the likelihood and consequence of each risk. Understanding the severity of each type of business risk will ultimately help management decide how to best prioritize their risk mitigation strategies and resources. Anticipating the likelihood of any threat will also help in this regard.
Step 3 – Ranking Business Risks
Some risks can completely destroy a business. However, many risks are tolerable, and may even be minor enough to justify absorption as a strategy (rather than spending resources on prevention).
Ranking each identified risk in terms of consequence can allow a team to better understand the most important elements of a risk management plan.
Step 4 – Mitigation & Preemptive Planning
Once a list of risks have been successfully identified and ranked, an organization or individual can begin to take preemptive measures to prevent risks from occurring in the first place. This method of risk response planning can help organizations reduce the financial or PR burdens that are often associated with business risk, ultimately keeping progress moving forwards.
Start with the highest ranked threats and develop strategies to prevent them from occurring. An example of this would be for an office manager to develop strategies with their employees to prevent email phishing or cyber theft from impacting their organization, reducing the risk of cyber crime or possible data leaks.
Mitigation is without a doubt the most appealing option for a business when it comes to developing a successful risk management strategy. After all, stopping a risk from ever occurring is preferable to engaging in a costly contingency plan and PR campaign.
Step 5 – Plan Monitoring & Revision
Once a risk management plan is fully developed (and team members have been educated on organization strategies they can use to mitigate risk), consistent monitoring and review is critical.
A risk management plan is of no use if it is not kept up to date. Additionally, if projects encounter a business risk and are impaired, a review should be conducted to see if something could have been done to avoid the negative scenario from ever occurring. Employees should also be kept up to date on any changes to mitigation strategies or industry conditions that may present them with new challenges or threats.
Encountering obstacles as a business or freelancer is completely normal, and experiencing delays or setbacks is not a sign of failure. However, in order to effectively reduce risks and to legally protect your organization as best as possible, developing a solid risk management plan is highly recommended.
Create a comprehensive strategy, inform and educate all involved parties on how they can play their part, and review the plan accordingly.