Risk Management Guide from Scratch
This explain offers a risk management guide for beginners, it is a simple-to-understand and complete guide in which you will learn the basics to manage your company's risks, from identifying them to taking actions to control them.
Introduction
We know that starting in the world of risk management can be complicated and overwhelming. That’s why we present this guide, so you can learn step-by-step how to handle this process. It’s a simple yet comprehensive guide in which you'll learn the basics of managing your company's risks, from identifying them to taking actions to control them.
Grab your favorite drink and let’s get started!
Step 1. Identifying and Creating Risks
The first step is identifying what could go wrong within your organization. To do this, you should review your processes. Think about the problems or unexpected situations that could negatively affect your company. Remember to involve all areas of your work; asking them for input is also a good option.
There are different tools you can use to identify risks, and here are some of the most commonly used:
- What If: This involves organizing meetings with experts who know the processes in detail and asking questions to foresee potential risks.
- Preliminary Hazard Analysis (PHA): This involves breaking down each phase of a process and associating general risks with particular stages.
- Five Whys: By asking repetitive questions, you can identify the root causes of risk events.
- Risk Analysis Questionnaire: This consists of creating a series of questions to determine the likelihood of loss events occurring.
If you want to know more about tools in this link you can learn about them to apply them in your management process.
Once you've identified your risks, you need to record them. The best option is to use Pirani, the risk management software that will save you 60% of your time on operational tasks. You won’t have to worry about faulty matrices, delays in data entry, or overload. Here’s a video where you can learn how to do it.
💡TIP: Pirani integrates artificial intelligence to help you write your risks. Here’s a video where we explain all about this feature!
In Pirani, you can record your risks with just a few clicks. Here’s an example:
- Risk: Losing important data due to a system failure.
- Creation of Risk: “Lack of regular data backup.”
Don’t forget:
- Why record the risk?: It allows you to document and identify threats before they become serious problems.
- Benefits of recording risks?: It improves decision-making, allows quick responses to unforeseen events, and reduces financial losses.
- Importance of quantifying risks?: Measuring risks helps assess the potential impact in numerical terms, which makes comparison and prioritization easier.
Step 2. Create a Risk Matrix
Now that you've identified and created your risks, it's time to organize them in a matrix. A risk matrix is a table where all the key data is stored, allowing you to visualize how often a risk might occur and the impact it would have if it did.
Think of the matrix as a grid where you place each risk based on how likely it is and what its impact might be.
To help you understand what we mean by frequency and impact, here’s a simple glossary:
Frequency: The likelihood of a risk occurring. It can be measured using qualitative and quantitative scales.-
- Unlikely: Cyberattack on a small company that doesn’t handle sensitive data.
- Possible: Power outage in a region with a limited history of power failures.
- Occasional: Damage to key machinery in a production plant that has been regularly maintained.
- Probable: Delays in supply delivery due to logistical issues in the supply chain.
- Frequent: Minor software malfunctions in daily use without proper maintenance.
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- Insignificant: Temporary loss of internal access that doesn’t affect daily operations.
- Minor: An error in an internal process that causes a slight delay in project delivery.
- Moderate: A minor financial penalty for non-compliance with a lesser regulation.
- Major: Significant loss of revenue due to prolonged service interruption.
- Catastrophic: A fire that completely destroys the company’s main infrastructure, causing severe financial and reputational losses.
These values can be named differently, depending on the requirements of each organization and its methodology, you can learn more here :)
Heat map
We present to you ✨the heat map✨, which is a table with two axes, where the Y-axis represents the frequency and the X-axis the impact.
In a heat map, you can visualize risks by color; warmer colors such as red and orange indicate high risks that require immediate attention, while cooler colors such as green indicate lower risks.
This makes it easier to identify at a glance which problems are most urgent and where you should focus first.
💡TIP: With Pirani, you can automate your heat map, if you don't know how to make a heat map or what a risk matrix is, we explain it to you.
Step 3. Control Your Risks
Now that you have your risk matrix and heat map, you need to establish controls to reduce the likelihood or impact of risks. Controls can be of three main types:
- Preventive: Designed to avoid or prevent risks.
- Detective: These detect inconsistencies and generate alerts before they escalate.
- Corrective: When a risk materializes, these controls help mitigate the damage.
In internal control, you should know two very important terms; inherent risk and residual risk, here we explain them:
- Inherent risk: It is the natural risk, that is present from the beginning of a process and before taking any measures to mitigate it.
- Residual risk: It is the risk that remains after having taken measures to reduce the hazard.
💡TIP: In Pirani, it is very easy to make controls, if you want to learn how we leave you a video.
Step 4. Assess Risks
In this step, you must evaluate each risk and decide on the appropriate action plan to reduce it.
Practical example:
In the IT area, you detected the risk of data loss, due to server failures and cyber-attacks.
What you need to do is to create an assessment plan to monitor, follow up, and continue risk management. Assigning assessment plans and types of assessments.
With that assessment, you can know if that data loss requires prioritization, in the following steps.
💡TIP: With Pirani, you can create assessment plans, to monitor, follow up, and give continuity to your risk management. If you want to learn how to perform the risk assessment, we leave you a free ebook.
Step 5. Take Action
After evaluating your risks, it’s time to act.
What is an action plan?
It is a series of tasks whose mission is to reduce the exposure to risk or correct problems generated by the materialization of the risk.
What is the difference with controls?
A plan is methodical, has an organization, and is usually more comprehensive; controls are used to check and inspect situations.
Implement the plans you have defined to minimize the most significant risks. This phase is very important because every action counts in risk mitigation, so you should not leave it on paper.
💡TIP: This may sound in another language, but in Pirani, it is very simple, as we have been doing it we leave you a video so you can learn how to do it.
Step 6. Monitoring
Risk management is a cyclical process, so you should always be adjusting and monitoring risks to adjust your strategies as needed. To do this, we recommend establishing periodic reviews to check the effectiveness of your action plans.
Be sure to use clear indicators to measure the performance of your controls, such as the frequency with which incidents occur or the time it takes to resolve them. It is also important that each review has the participation of those involved and responsible for each area because they are the ones who know the risks best.
Common errors in control:
Thinking that risks do not change, when in fact, they do so continuously.
Another mistake is to rely too much on controls that have not been tested or updated. If you don't adjust controls according to changes in the business, they will not be effective.
Who should be in charge of monitoring?
Generally, the risk management team is responsible for leading the monitoring, but it is important to involve the leaders of each area. In this way, everyone has a role in identifying new risks and ensuring that controls are working.
💡TIP: Pirani has a reporting module that will be very useful to monitor and have a focused view on what interests you, assigning managers responsible for each of the controls.
Step 7. Make it Easier with Pirani
Managing your risks can be easier than you think, especially if you have the right tools. With Pirani, you can automate the entire process to reduce the operational burden by up to 60%, and human error will no longer be a concern. Pirani allows you to avoid reprocessing, reducing human error by 30%.
What about reputation? Pirani also helps you, it is proven that using risk management software, improves the perception of risk maturity to customers and regulators.
Delayed event detection will be a thing of the past because, with Pirani, you can reduce detection and response times by up to 40%.
Are you ready to take the step and manage your risks with Pirani?
