A risk management plan documents potential risks to an organization and the steps that employees at the organization should take to keep those risks at acceptable levels. An organization will have many risk management plans in place to address different risks.

A risk management plan may be developed by key stakeholders including senior management, compliance officers, and department managers to address risks that are high-level and strategic. Or, in a project management setting, a project manager works with the project team to develop a risk management plan particular to project risks.

Regardless of the risk management plan’s scope, the plan is developed by a group of stakeholders who know how to identify various potential risks and perform risk analysis.

Many of us assume that a risk management plan and risk assessment are synonymous; they’re not. A risk management plan documents the whole process, including identification, evaluation, and risk mitigation. It also includes risk control monitoring, cost-benefit analysis, and financial impacts.

In contrast, a risk assessment is a specific part of the risk management process, where you categorize each risk by likelihood and severity so that you can outline the possible consequences and prioritize steps to mitigate the risk. Risk assessment is a crucial element of the overall risk management process and is mainly focused on identifying and analyzing risks.

What Is Risk Management?

Every organization is exposed to risks. Risk management is how we handle those risks. It comprises risk response planning for myriad uncertain events, from natural disasters to cybersecurity threats.

Risk management is not only wise to assure business continuity and profitability. Most laws, regulations, and industry compliance frameworks require proof of risk assessments and other methodologies to avoid data breaches and protect sensitive information.

Risk management does not eliminate all risks. Instead, it determines the best course of action to optimize the cost-benefit relationship between risk reduction and use of corporate resources.

What Are the Steps in a Risk Management Plan?

Creating a risk management plan has several steps. It’s crucial to follow all the steps in order. This guide can be a template for a comprehensive plan addressing known and emerging risks, as well as identifying new risks.

Set Objectives

First, the team members need to review business or project objectives, whether the goal is a product development project or an initiative to develop third-party business partnerships. The risk management process must align with current and future goals by starting with business objectives.

Risk Identification

The second step is to review digital assets such as systems, networks, software, devices, vendors, and data. Cataloging these assets allows the key stakeholders to brainstorm and identify risks corresponding to each one.

A risk can be a positive or negative condition with financial, operational, or reputational consequences. Each identified risk is recorded in a risk register.

Risk Assessment

After risk identification, the risk management team assesses the known risks. You might find that positive risks, such as early product delivery, lead to adverse risks, such as a customer’s inability to meet a payment schedule. Again, the project team will brainstorm to analyze potential impacts.

Risk Analysis

For each risk identified and assessed, the project team must look at the likelihood of the risk and then estimate its potential impact. This activity will help the team prioritize which risk events require the most attention and most robust mitigation strategies.

A risk assessment matrix is often used to visualize the potential impacts. Measure the likelihood from low to high on one axis and the severity from low to high on the other axis. Risk events in the upper right quadrant should be prioritized first because they have a high probability and the worst severity.

Risk Treatment

After evaluating the risk assessment matrix and assigning risk ratings, the project team will determine if it will accept, transfer, mitigate, or avoid a risk.

The team may decide to accept a low potential risk event with minimal impacts. The team will also probably want to avoid or mitigate a high-impact, high-probability risk event and prioritize prevention and mitigation plans.

Risk Mitigation

The project team will design the risk mitigation strategies for the risks it decides to transfer, mitigate, or avoid. This section should be detailed with mitigation actions, dependencies, risk response planning, and contingency plans.

Risk monitoring activities should also be designed in this phase so the project team can determine if prevention and mitigation actions are working as expected.

Risk Management Plan

The risk management plan is the final document containing all the factors in risk management, risk register, analysis, tolerance, and mitigation actions.

A comprehensive risk management plan template provides the project team with consistent processes and beneficial tools to ensure a successful project. This template should include an integrated overview of the planning phase, milestones, and deliverables to ensure no steps are skipped.

See also

How to Build a Risk Management Plan

Some common terms and definitions that are key to understand compliance

Risk Management Best Practices

To build an effective risk management plan, you should consider these best practices.

Create a Strong Risk-Aware Culture

An essential step in any effective risk management program is the development of a solid risk culture. Risk culture is often defined as the shared values, beliefs, and attributes about risk throughout the organization. Senior management and the board of directors are responsible for creating the company culture and setting the tone from the top, which should then flow downward through the rest of the organization.

Make Stakeholders Aware of the Process

To manage risks effectively, engage key stakeholders every step of the way, starting with the initial planning phase. Stakeholders come from different functions inside and outside of your organization: employees, customers, vendors, etc. This diverse group provides you with a comprehensive representation of all facets of your business and each of the associated risks.

Proper Risk Management Policies

Having well-defined roles, responsibilities, and templates in a documented policy is crucial for a comprehensive risk management strategy. This definition will assist you in identifying all potential risks that could have a bearing on your business, consistent evaluation of the impact of those risks, and how you intend to mitigate risks.

Communication

Organizational-wide awareness of risks and mitigation strategies is imperative to ensure buy-in and adoption.

Evaluate and Persist

Transparent risk monitoring processes assure that all risk mitigation endeavors are working as expected. Risk management is an ever-evolving and constant process. Hopefully, these best practices in risk management have guided you in sketching out a strategy for your organization.

Develop Your Risk Management Plan with Reciprocity ROAR

The Reciprocity ROAR platform can help you increase revenue and productivity. It helps you simplifies risk management with comprehensive views of control environments, easy access templates for risk assessment, and continuous compliance monitoring to address critical tasks at any time.

Policies and procedures are revision-controlled and easy to find in the document repository. Workflow management features offer easy tracking, automated reminders, and audit trails. Insightful reporting and dashboards provide visibility to gaps and high-risk areas.

Schedule a demo to see how the Reciprocity ROAR platform can be used as part of your risk management strategy.

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