What Does Risk Management in the Business World Mean?

Risks to project and product success exist because of uncertainty about internal and external factors outside of an organization's direct control. Risk management seeks to predict and rank potential business problems and create a plan to deal effectively with them if they occur. Monitoring and controlling risks offers the greatest chance of dealing successfully with them.

Identify Risks

Breaking risks down into categories helps your business management team identify potential occurrences, such as known competitors with new products or reduced prices, new competitors, production problems or defects, and legal and environmental issues. Brainstorming with key personnel using scenarios and background knowledge may identify risks. Working with business intelligence professionals to track trends, patent applications and work directly with current customers provides useful information on potential risks.

Risk Impact Analysis

Not all risks have the same probability of occurring or the same impact, if they do occur. Business managers often create a matrix listing possible events with associated impact analysis such as the one offered by the U. S. Army Criminal Investigative Service. The Project Management Institute's risk probability and impact matrix suggests adding color coding to quickly find threats to success in terms of cost, time, scope or quality and creating a mitigation plan for those risks with the highest probability and greatest impact on cost, time, scope or quality.

Key Indicators

For each business risk with a high probability of happening or great impact, the management team should generate a list of indicators or warning signs. Because responding quickly to risk means having a better chance of successfully dealing with it, the indicators may involve subtle changes in behaviors or performance. Use professional judgment and data to track significant risks.

Risk Management Plan

Planning for every possible risk is not practical. However, business leaders, working with senior and project managers, should develop options based on the type of risk encountered. The U.S. Department of Transportation in its risk mitigation and planning suggests strategies to deal with business risks including avoidance by changing the project to eliminate the risk, strengthening aspects of projects or business practices to mitigate the impact or accepting the risk without changing your business plans.

References

• International Organization for Standardization: New ISO Standard for Effective Management of Risk
• "Project Management Body of Knowledge"; Project Management Institute; 2009
• U.S. Army Criminal Investigation Command: Composite Risk Management
• U.S. Department of Transportation Federal Highway Administration: Risk Mitigation and Planning