Steps for successful risk management
Risk management is a tool to map and evaluate risks in a structured and explicit way and – by dealing with them proactively – to manage them better. Risk management is based on making risk analyses.
In risk management, the risk is managed by determining for identified risks how the probability of occurrence of the risk or the consequences should be controlled.
The company makes an inventory of risks, knows as far as possible the financial consequences of the risks, and attaches measures to them. By thinking about the possible risks of certain policies at an early stage, these can still be prevented or any serious consequences can be limited.
A one-off risk analysis is not enough. Only when the risk analysis is regularly repeated and updated and the resulting measure.
Step 1: identification of risks
Risk identification involves all strategic, operational, financial, and traditional (damage) risks. The link to the objectives of the organization and business units is essential.
Step 2: analysis and assessment of risks
Mapping out the risks makes it possible to analyze them. A financial manager is of course not available by mapping risks alone. It is then important to consider what the greatest risks are. Not all risks deserve the same attention; so start with the most important.
Step 3: analysis of current control measures
Companies can distinguish themselves from their competition by managing their risks more efficiently. In this phase, it must be determined whether the risks have not been controlled too much and whether there are any blind spots.
Step 4: design and implement action plans
After the control measures are already taken have been mapped out, the financial manager must make a choice. What happens to the remaining risks? For each risk, he must make a choice from the following four options:
Step 5: measure, check and report
Risk management is an ongoing process. It is important to measure whether the action plans have an effect on the risk profile. Risk information can also be used for planning audits.
Step 6: Integrating results into decision-making processes
The risk information can be used for the analyzes of future decisions (by means of the risk analyzes from the past). With every new investment proposal or major project, the organization must consciously consider the risks.