Performing efficient risk management is an essential need for any business today. With sudden changes in the market, especially in times hard to predict, a delayed reaction can negatively impact your business.
There are key risk control points that if not monitored effectively may cause losses to your company. How to carry out effective monitoring of all these events?
To answer this question and show you a way forward to improve your risk management and make it more efficient, we have prepared this article. Read on and take advantage of the tips we have compiled for you!
What is risk management?
First, let us define what risk management is: each process, activity or project maintains a certain level of risk that it is not executed as planned or does not occur as expected, causing loss of resources, delays, and deviations from the objective.
These problems can have different origins, such as the lack of market demand, the lack of organization with expenses and services, or even the mistakes of a collaborator.
Any of the above items may pose a risk to the operation and cause damage. However, these same factors can also provide opportunities for improvement; To take advantage of them it is necessary, first, to map the risks.
This is where risk management comes in, a methodology that identifies all these points before they happen, which facilitates the use of opportunities and minimizes the impacts and actions of threats.
We can then conceptualize risk management as a set of coordinated strategic actions aimed at minimizing threats and maximizing opportunities generated by uncertain events beyond your company’s control.
How to deal with the risks of a project?
First, it is very important to understand the true reason for the events, to facilitate the process. With this in mind, we have prepared a step-by-step guide to master the risk management of your business projects.
- Risk management planning
The first step is to plan risk management, that is, before knowing what the risks are, you must plan how to detect them and be prepared for decision making.
- Risk identification
The second step is to identify all the risks of your project, making a list to verify what can go right or wrong; in this step there must be commitment and help through information.
- Carry out qualitative risk analysis
Qualitative analysis is the prioritization of risks, paying attention to those that are very likely to occur or that may cause great impacts to the project, since it is not possible to deal with the details of all.
The classification can be done on a scale where the probability can range from very high to almost nil, and the impact can range from severe to negligible.
- Perform quantitative risk analysis
The quantitative analysis demonstrates the impact of time and money that risks cause to the project, providing the numbers, days, hours, and values that the company will have in case the risks occur.
Therefore, considering these three stages classified as: planning, identification, and qualification, we can start the project, not forgetting that we need to manage it after the application of the steps, to see if everything is occurring as planned.
During the execution of a project, new risks will appear, whether they are small or large. The success of the project will come through constant management, carried out throughout the durability of the project.
- Risk monitoring
This step consists of monitoring the project throughout its implementation, observing when it is exposed to risks and identifying the appropriate moment to implement the planned response.
Here, too, new risks that may emerge as the project progresses should be considered, so that risk management becomes a continuous and cyclical process.
Risk management tools
The PMBOK guide mentions several tools that can be used for risk management. Checklist analysis, for example, identifies risks based on similar previous projects.
Additionally, risks can be identified through brainstorming meetings. But one of the most important, complete, and widely used tool in risk management is the SWOT matrix.
The SWOT matrix was created by Professor Albert Humphrey, from Stanford, in the 60s. It consists of an analysis that maps 4 attributes categories of a project, which are the following:
This technique has been widely used in the strategic planning of organizations, including risk management, pointing out what needs to be analyzed. Detailing the points, we have:
Strengths: in this category, the main differentials and competitive advantages of the business should be listed, that is, those that can minimize impacts or prevent risks, reducing the probability of problems and accidents.
Weaknesses: this is the time to list the shortcomings of the project, those factors that can increase the probability that risks will materialize, from environmental, political, or economic reasons to internal team problems.
Opportunities: here the possibilities of mitigating risks are considered, according to the company’s ability to reduce impacts on the project, through improvements in its processes, whether internal or external. It is worth remembering that improvements are potential, which means that the results may not be exactly as you envisioned them.
Threats: changes in tax legislation or the growth of competition are some examples of threats to a project, so in this regard you should list what can be an obstacle to the success of the business.
Your main objective will be to evaluate the internal and external factors that may affect your project, to identify its strengths and weaknesses (internal factors), as well as its opportunities and threats (external factors).
After gathering this information, the ideal is to do a complete analysis of the entire scenario facing your project and then plan risk management.
It is also worth remembering that a good risk management plan should contain detailed information about all risks, their level of severity, those responsible for preventing each risk and delineating problems, and so on.
In conclusion, risk management is a fundamental stage of a project, as it determines whether it will succeed or fail during execution, harming or favoring the result.