The Importance of Risk Management

The Importance of Risk Management

Risk management is a process that allows individual risk events and overall risk to be understood and managed proactively, maximum success by reducing threats and maximising opportunities. All projects, programs and portfolios are risky because they are unique, limited, supposedly people-driven and externally influenced. Risks may have a positive or negative impact on the achievement of objectives. Risk includes threats as well as opportunities, and the risk management process should manage both. Why do we manage risk? Risk taking is a part of every business, but how a company handle a risk can show that is it a good company. Why is risk management so important? Here is the reasons that why risk management is so important.

1. A Risk Management Plan Makes for Consistent and Efficient Operations

You will find out that what causes your company is not working consistently and efficiently when you are having your risk management planning. For example, if a company find out that this product is constantly having a low selling rate, this will be a risk for the company if the sales of this product can’t rise.

2. A Risk Management Plan Leads to More Satisfied Customers

Risk management help the company to maintain their long-term development. By knowing the company weakness and strength, we can decide which area of the company need to be developed in order to get the maximum return.

3. A Risk Management Plan Gives you a Healthier Bottom Line

By having a risk management planning, you will discover some area that can save up quite a lot of money and risky deal that can be avoid. Identifying and resolving each of these issues will improve the company’s bottom line.

4. A Risk Management Plan Improve a Company Brand

When a company is having a risk management plan, it lets their employee feel confidence that they are working in a company which is proactive and have planning about their future.

5. A Risk Management Plan Can Help a Company Discover Reusable Information

Risk Management involve in many people. The information is gathered and analysed, this provides some information that you would ignore.

6. A Risk Management Plan Can Give You a Direction for Buying Which Kind of Insurance

A part of a risk management is to plan that how to reduce the impact when your company is having a crisis.

There are also different type of risk

Type of Risk

1. Project

  • Risk management at the project level most often concentrates on individual risks that affect the project objectives if they occur. However, it is also important for the project manager to understand the overall risk exposure of the project so that the sponsor and other stakeholders can be notified.
  • Risk management should be closely aligned with the schedule. Risks should always be considered in the estimated costs, time and resources.
  • This is the responsibility of the project manager for ensuring risk management. The risk management process can be supervised and facilitated in accordance with the size and complexity of the project by a specialist risk manager.
The Importance of Risk Management

2. Programme

  • The program will develop a common risk management framework and standards throughout the programme. This allows the comparison of risks, reduces the time taken to start project management processes and helps to identify interdependencies among program-wide risks. In the Risk Management Plan, the common framework will be established.
    • Project Risk Escalation and Aggregation, Wider Business Risk
    • Risks to Benefit Achievement
  • The risk management of the program addresses all individual project-level risks that have a broader impact if implemented. The attention and/or action program increases risks from projects that cannot be effectively managed both in projects and in contingency. In addition, the associated or common risks within individual projects can be combined or aggregated, so they must be stepped up at program level.
  • The program risk management also includes any portfolio or strategic risk delegated and the risks which arise directly at program level itself. Program risks will focus on priority program components, resource allocation, interfaces and interactions between program components, ability to deliver program change management activities and cumulative risks resulting from the combined impact of project risk.

3. Portfolio

  • Portfolio risks are often such that they can have important effects on the organization’s capacity to operate. Two areas will be focused on portfolio risk management:
    • Risks Escalated from Projects or Programmes and from Areas of Day-to-Day Business
    • Risks that Impact Upon the Objectives of the Portfolio and the Host Organisation
  • Project and programme risks that cannot be effectively managed at their originating level may be escalated to the portfolio for responses unavailable at project or programme level.
  • The portfolio establishes joint risk management framework, standards and projects to ensure a common approach and reporting structure. The portfolio is integrated into projects and programs. This enables the risk to be compared effectively, reduces the time needed to launch risk management procedures and helps identify potential conflicts in selected portfolio responses.
  • Risk efficiency consideration is of special importance for the management of portfolios. In financial portfolios, the principles of risk efficiency have been established for many years. The projects and programs are equally relevant to their portfolios. Ensuring that an organization is not exposed to too much risk and is efficient in the’ balance’ phase of the portfolio life cycle is an important function.
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