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How to assess and manage risks?

Study guide

Risks are difficult to identify, let alone seek to control and prepare for. However, if you encounter results that you did not anticipate before, your time, capital and reputation could be jeopardized. Despite these possibilities, especially where your job may face many risks, you need to learn how to use risk assessment and control tools in a way that you can identify and manage risks in a timely manner and reduce the negative effects on your plans. Give. This article will help you in this direction.

In life, no matter what role you play, sometimes you have to make decisions that are not without risk. Risk consists of two parts: the possibility of errors and mistakes and the negative consequences of this error. Read more about how to use risk assessment and control tools to identify and manage risks in a timely manner.

What does risk analysis mean?

Risk analysis is a process that helps you identify and control problems that may arise in the future that weaken your large projects and businesses. To do this, you must first identify the threats that may be coming your way, then assess the likelihood of them occurring.

Risk analysis can be a very complex task because you have to look at all the details of your work, including detailed project information, financial data, security protocols, marketing forecasts and other relevant information, one at a time. Because this tool can save you time, money and credit, using it is a necessary step.

When to use this tool?

Risk analysis is useful in many cases:

  • When you are planning for your projects. In this case, you will be able to prevent possible problems.
  • When you want to decide whether to continue a project or not.
  • When you want to improve your job security and you are managing potential risks in the workplace.
  • When you are preparing for events and problems such as breakdown of machinery and equipment, theft, staff illness or natural disasters.
  • When you are planning to deal with changes such as the entry of new competitors into the market or changes in government policies in the workplace.

How to use risk analysis?

Follow these steps to evaluate the risks involved:

1. Identify threats.

The first step in risk analysis is to identify potential threats or inventory that you may encounter. These threats can have different sources. for example:

human: Illness, death, bodily injury, or other significant bodily injury to an individual

operational: Weak procurement and operations, less access to essential resources or failure in the distribution sector

Credit: Loss of customers and employees’ self-confidence or damage to your credit in the market

Process: Inability to take responsibility, problems with internal systems, controls or fraud

a project: Spending more than the set budget, prolonging the workload too much, there is a problem with the quality of products and services

Financial: Business failure, stock market fluctuations, interest rate fluctuations, unavailability of financial aid

Technical: Increasing advances in technology, the inability to use it

normal: Climate, natural disasters, infectious diseases

Political ‌: Changes in taxes, public opinion, government policies or foreign influence

Hazardous chemicals, poor lighting, falling boxes, or any conditions that could damage employees and products.

You can also use different approaches to advance this analysis:

  • Make a list like the one above and see which one threatens you.
  • Look at the systems, processes, and structures you use, and evaluate the risk that each of them may entail. What weakness and harm from them threatens you?
  • Listen to the different perspectives of others. If you are leading a team, ask your people for their opinions on how to perform better, and consult with other people in the organization or those who are pursuing similar projects.

2. Estimate the risk

Once you have identified the potential risks you face, you should weigh the likelihood of them occurring and be aware of the potential impact and damage they may have on you.

One way is to estimate the probability of the risk occurring and multiply it by the cost at which the risk will occur to you. This formula gives you the real cost of risk:

Cost of occurrence of risk × probability of occurrence of it = cost of risk

As a simple example, imagine that you have identified a risk that would increase the cost of your rent. 80% This is likely to happen next year because your landlord has increased the cost of renting others. If this happens, your company will have to incur an additional cost of fifty million tomans next year. Thus, the risk cost of increasing the rent is:

0.80 (probability of occurrence of risk) × 500,000,000 Tomans (cost of occurrence of risk) = 400,000,000 Tomans (cost of risk)

Do not skip this step. Get as much information as you can and accurately estimate the likelihood of the risk and the costs involved. If you do not have the right forecasting tools, you can get information from previous years’ data.

How to manage risk?

How to use risk analysis tools for risk management

Once you have identified potential risk costs, you can look at ways to manage them.

Try more economical approaches, because it does not make sense at all if the costs of prevention are greater than the costs of threats. In this case, it is even better to take the risk in order to use more of your resources to eliminate it. Be careful how you use these tools, especially when it comes to ethics or personal safety.

Avoid risk

In some cases, you may need to avoid risk altogether. This can mean not getting involved in a new business, exchanging projects, and giving up a risky activity. But this is possible when the risks of a project do not jeopardize the interests of your organization, or those risks are not worth spending money on. But keep in mind that by ignoring the potential risks, you will miss out on an opportunity. What happens to the analysis if…? Use to evaluate options when making decisions.

Share the risk with others

You can share the risks and then share the profits from a project with another person, organization or third party. For example, you can share your risk with the insurance company through third party insurance for your company building and warehouse, or you can partner with another organization to produce a joint product.

Take the risk

Your last resort is to take risks. This option is on the table when you have no way to avoid or mitigate the risk, or the potential potential loss cost is less than the cost of insuring the company, or the potential gain in doing the work is worth the risk. For example, you may take the risk of starting a project late just because the profit of that project covers the initial costs.

Risk control

If you are going to take a risk, it is better to take steps to reduce its negative effects.

Business trials are successful ways to reduce risk. Using them, we can perform high-risk activity on a small, controlled scale and find out where potential problems arise, then we can find and implement appropriate preventive and inspection measures before starting activity on a large scale.

Preventive measures It is about preventing high-risk situations, which includes security and safety training, firewall protection, corporate servers, and cross-training of your team.

Inspection measures It involves identifying points in the process that can cause problems and errors. To prevent this from happening, steps are taken to resolve these issues (if any). Measures such as reviewing financial statements, pre-product safety tests, or installing sensors to identify defective products.

Execution-review-approval-approval is one of the common methods to control the impact of risk conditions. Like business trials, this method tests a variety of ways to reduce potential risks. This 4-step tool helps you minimize potential hazards by analyzing the situation, presenting and testing a solution, examining how it works, and ultimately implementing it.

Important Notes

Risk analysis is a proven way to identify and measure factors that can negatively affect the success of a project or business. These analyzes enable you to identify potential risks that threaten you and your organization, and to determine if you can implement the decision ahead.

Once you have weighed the value of the risk you are about to face, you can also control the different ways it is managed. Risk management can decide whether to avoid risk, divide it, or accept the risk as well as reduce the negative effects. It is very important that you thoroughly assess issues when analyzing risk and be aware of all the consequences. This awareness includes, in particular, awareness of costs, ethics, and the safety of individuals.

Author: Mohammad Ali Nasiri




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