5 Steps for Developing a Risk Management Strategy

6 min readApr 13, 2021

They say prevention is better than cure, and we couldn’t agree more. No organization, large or small, is devoid of risks. What sets the successful apart from the struggling ones is how well they manage their risks beforehand — and how thorough their risk management strategy is.

One thing about risk is that it isn’t something that just occurs out of the blue. It is generally the result of several factors that could have been corrected or planned for by implementing an effective strategy. Ignoring the small signals or threats could cause far-reaching consequences for organizations, such as project delays, revenue loss, compromised relationships, and more.

A risk management program points out and prioritizes such threats by measuring the potential damage they would cause, then developing an actionable strategy for a resolution. In this comprehensive guide, we’ll highlight the importance of a risk management plan and give a five-step process of establishing an unbeatable plan. So let’s get started!

The Importance of a Risk Management Strategy

That a company can’t foresee what the future holds for its processes and operations is no secret. However, having a rock-solid strategy can help the company plan for uncertainties while developing a strategy to deal with them before they wreak havoc. Taking such an action brings forth the following benefits:

Optimizing valuable resources such as time, human resources, assets, property, and income due to lower risk occurrence.
Making the environment safe and secure for staff, customers, and visitors.
Stabilizing operations and reducing legal liability.
Protecting valuable assets and people from harm.
Keeping the environment safe and sustainable.
Scaling down your insurance needs to cut spendings on premiums.

The 5-Step Process for Developing a Top-Notch Risk Management Strategy

Whereas there’s no particular solution for creating a risk management plan one-time, organizations can follow a simple procedural flow to come up with a conclusive plan. This entails:

Identifying the risk
Analyzing the risk
Evaluating the risk
Treating the risk
Monitoring/reviewing the risk

Let’s look at each step in a more in-depth manner.

Step 1. Identify the Risk

You can’t address a problem that you don’t know its root cause. So the first step to developing a risk management strategy is to identify all potential risks that could stand in the way of your team completing a project. Before beginning the identification process, you want to keep in mind that the risks will fall into four broad categories: management, technical, external, and organizational.

Marking the categories will help streamline the process as you’ll have a clue what risk belongs where. Afterward, you want to use any of the techniques below, depending on your organization’s resources, team, budget, timeline, project vulnerability, and project size.

Interviews. Key project members, stakeholders, and external experts possess a wealth of knowledge to shed more light on familiar and little-known risks. Picking their minds based on their experiences is an excellent way of identifying the risks.
Brainstorming. It’s a way of coming up with a solution for a particular problem by holding up a spontaneous discussion. You can brainstorm in a group of team members where each individual personally gives their views on potential threats, risks, and opportunities. And if you’re working with a 3rd party contractor for the first time, that’s even better because you can quickly identify risks by just listening to other people’s thoughts.
Expert Judgement. This involves seeking the counsel of an individual with specialized training or expertise in your area of risk management analysis.
Assumption Analysis. Here, you’ll need to subscribe to the school of thought that all assumptions are potential risks. Flashback on everything you’re assuming about the project. Is it realistic? If not, then that’s a most likely risk.

Step 2. Analyze the Risk

What’s the probability of each risk (you’ve identified) above happening? And if they occur, what would be the extent or severity of the damage they’ll cause? These are the questions that define the risk analysis process. You can streamline this process by categorizing/prioritizing the risks based on potential root causes and perceived similarities. We leverage a mix-up of the following techniques to come up with the best analysis:

SWOT Analysis. This involves mapping out the organization’s strengths, weaknesses, opportunities, and threats. In the risk management context, it involves brainstorming for potential risks under each of the four parts, then analyzing their likeliness and severity.
Qualitative Analysis. Here, you can leverage risk assessment tools like Hyperion to flesh out how each risk results in consequences, hazards, probability, and ultimately loss.
Quantitative Analysis. The reason for conducting a quantitative analysis is to turn qualitative findings into measurable concepts that can be featured in the risk management strategy. This also helps in determining the timeline and budget it would cost to complete the project.

Step 3. Evaluate the Risk

Step two talks about analyzing risks for severity and probability, which together form the risk magnitude. In step three, it’s time to decide whether a threat is imminent or potentially costly enough to want proactive treatment. Or is it a risk you’re willing to take?

You can leverage progressive technologies like AI and predictive analytics to produce the most accurate risk evaluation. Thanks to predictive analytics, organizations can scan tons of data sets and records to note changes and identify how they’ll play out in the future. It is a powerful tool for businesses as it provides par-level assessments and estimates of what would happen in the future, given the understanding of what happened in the past.

Step 4.Treat the Risk

So far, you’ve noted down all possible risks, their magnitude, and the potential loss they’re likely to cost. Now it’s time to start treating the risks by first developing ways to minimize the possibility of threats while maximizing the potential opportunities. This involves preparing preventative and contingency measures to help in risk avoidance. If there are potentially inevitable risks, you should also have protocols to mitigate the aftermath.

The following techniques may help in risk response planning:

Avoidance. One way to eliminate a problem is to scrape off its root cause. When conducting a project, this may involve removing tasks bearing the risk in the first place.
Acceptance. Perhaps you’ve heard the adage, “give me the strength to accept the things I can’t change,” right? Some risks are practically unavoidable, and the best you can do is to accommodate them in your risk management plan.
Monitor and Prepare. Other risks are usually too significant to give the “let’s wait and see” approach but also too critical to the project to scrape off. In such a scenario, you should name and document possible risk triggers, monitor their contingencies closely, and develop an airtight plan that you can enforce immediately when the risk occurs.

Step 5. Monitor/Review

It’s time to test the feasibility of your risk management efforts by employing the following techniques:

Assessment & meetings. Risk assessments should be a continuous process held in status meetings, including pointing out imminent risks plus those that are no longer a threat to the organization.
Risk Audits. This involves the reviewing and documentation of every risk response.
Variance and Trend Analysis. This involves using performance data to compare planned vs. actual results to control and monitor risk events.
Root Cause Analysis. Here, you should reevaluate the root causes of identified risk events to point out the failed system. Afterward, you can implement the appropriate protocols to categorize the risks accurately during the next risk identification round.

Develop a Sound Risk Management Plan with Hyperion

And that’s it for developing a solid risk management strategy. It all boils down to identifying, analyzing, evaluating, treating, and reviewing the risks. If you can implement these straightforward strategies, you will rest assured of better resource utilization, revenue optimization, stabilized operations, enhanced productivity, job satisfaction, among other benefits.

Do you wish to move your organization from reactive to proactive when it comes to risk control and prevention? Well, you can make that wish come true by leveraging a first-class AI-enabled risk assessment tool like Hyperion. To learn how the platform can help your business make more informed decisions, request a trial today!