Risk management. It’s a term that gets mentioned a lot here on YIQ. But what does it actually mean? Knowing what risk management is and how it works are two different things. There are a set of processes a risk management specialist must go through in order to establish the risk to a particular business. We’ll be outlining what risk management is and how risk is identified, for all those who’ve ever wondered: what is risk management?
One of the first things a risk management specialist does is to establish context. The risk for a construction site is going to be different than the risk in a classroom, for example. Once context is established the risk evaluation process can be planned and the types of risk inherent in the sector being evaluated can be narrowed down. Once context has been established, specific risks can then be identified. The risk specialist must identify where potential problems may begin. Once the source of a potential problem is know it can then be assessed and planned for.
When risks have been established, each risk must be assessed based upon its likelihood and potential severity. Asset valuation is also an important part of the assessment process as it influences the priority of each risk. The probability of certain events can be difficult to measure, as can the exact value of assets. As a result, a lot of risk management is based on educated estimates and whatever statistics are available. At the end of the assessment process the priority and potential impact of each risk should be decided.
After the risks have been assessed and the possibility of them happening has been accepted, a plan must be made to avoid them. This may mean installing an extra fire extinguisher on every floor of a building or a company improving their anti-virus software. The risk management process won’t rid a business of all risk, but it well get it to a manageable level.
Once risk has been established and a plan has been made, it must be managed. Risk for a business is constantly evolving so it needs to be monitored on a regular basis. A resolution cannot be applied and then forgotten about. New risks will emerge and they will require assessment and a prevention plan of their own.
Risk management is a circular process. Once risk has been identified, assessed and planned for, the process continues and begins over again. Being prepared for the hazards that can befall a business is of great importance. It would be a shame to put a lot of work into risk management for one year only to sit back and then watch it all fall apart in the next.
Do you have a question about comprehensive risk insurance? Ask it here and get an answer, for FREE.