Conventional project risk management methods are ill-equipped to serve digital enterprises. For this reason,Industry leaders are reimagining their risk management functions by adopting analytics tools. Business data analytics can help you better predict trends and outcomes, detect possible business threats, and prioritize actions in your response plan.
Our clients often have questions about how to maintain business operations in a complex and dynamic environment, as well as what should be done first when challenges arise. So, in this article, we explore how to perform risk analysis and address the most hazardous areas effectively.
Why enterprise risk management is a must-have for a modern business
Eight in 10 leadership boards think improved risk management will be vital for their organizations to protect and generate value in the next five years. Such processes and methods help companies adequately identify and deal with a full range of potential problems. In fact, they act as a guide in decision-making and planning in the event of an emergency or opportunity.
Project risk management is a similar practice aimed at neutralizing roadblocks throughout a project cycle to keep it on track and meet goals. So, it helps you:
- Meet deadlines
- Maximize results
- Be proactive, not reactive
- Evaluate the entire project
- Create an effective response
- Improve project stability
- Stay within the initial budget
- Decrease legal liabilities
What is risk analysis, and why should you do it regularly?
Risk analysis is a crucial tool for identifying and analyzing potential threats that could affect your projects or business initiatives. This multi-step process helps you map the threats and timely take the most suitable measures to cope with them effectively. Business risk analysis also simplifies the development of mitigation strategies and potentially saves you time, reputation, and capital.
For instance, cybersecurity is one of the critical areas today. Since the pandemic onset, the USA has seen a 300 percent rise in reported cybercrimes. Remote work has increased the average total cost of a data breach by almost $137,000. So, make sure you can mitigate cybersecurity risks to avoid downtime and prevent recovery costs.
So, what is risk analysis in business? It’s a go-to method for alleviating potentially business-threatening events. At TEAM International, we apply it to evaluate risk tolerance and anticipate any emergencies more effectively. Most importantly, it allows us to prioritize our security activities or add new ones. We recommend you use risk analysis to minimize business vulnerability at regular intervals, and every time you need to:
- Initiate a new project
- Identify potential threats
- Reduce the negative consequences
- Create or update your emergency response plan
- Determine better processes and requirements that improve planning
How to mitigate business risks in 6 simple steps
Step 1. Identify the most hazardous areas
Your business experience and team knowledge can help you detect and deal with known recurring threats. But what about issues you haven’t encountered before? Here, brainstorming with your project team and colleagues as well as interviewing stakeholders is the best way to determine as many potential risks as possible. If you’re collaborating with vendors or clients, their experience can also work. You can break down all the information into the following categories:
- Staff management
Identify and deal with risks in the project as early as possible. But remember, it’s a continuous process, and you should do it throughout the project lifecycle with a particular focus on key milestones.
Step 2. Determine opportunities
In fact, risks are the unknowns that can represent either threats or opportunities for your project. Modern enterprise risk management methods emphasize negative and positive outcomes associated with uncertain events. Consequently, the aim here is not to eliminate all threats but to add to business value by making informed decisions.
Risk analysis can help you reveal potentially positive unknowns and find opportunities for process improvement. So, review the best and worst case scenarios to ensure you have considered all contingencies.
Step 3. Assess, analyze, and prioritize
Now you need to evaluate the probability of each risk and its negative consequences. To do that, you can use a scale of 0 to 100, for instance:
- Low probability 0 – 20
- Medium-low probability 20 – 40
- Medium 40-60
- Medium-high probability 60 – 80
- High probability 80 – 100
Now you can rate risk impact accordingly, where 100 means catastrophic consequences. Here it is important to analyze how a certain situation will overshoot your budget, delay timelines, or affect your project deliverables.
It is also important to note that it’s not necessary to respond to each and every threat. Focus on those that require immediate attention. Identify high-impact threats with the greatest likelihood to occur to allocate your resources wisely and finally to secure your project success.
Step 4. Develop an action plan
A clear and detailed risk management plan is the next step in preventing or dealing with the most essential risks. Mitigation strategies should cover both scenarios for continuous and smooth business service. Such an approach can help you avoid being caught in the middle of an unexpected storm and lead your project team to success. So, make sure your plan involves:
- A risk description and assessment
- Your step-by-step action plan
- A risk owner
- A timeframe for risk termination
We advise you to calculate the time and cost for each plan as precisely as possible. This will help you select the best response plan from the available options. It is also a good idea to create a project risk management team or assign an individual responsible for dealing with the issues and implementing mitigation strategies.
Step 5. Monitor and re-evaluate
As a project continues, the impact and likelihood of potential contingencies may change. So, you need to actively monitor them and take prompt actions if threats exceed acceptable assessment levels. Dedicate time at least once a week to review the existing low-priority risks and identify new ones to avoid unpleasant surprises. By doing so, you will increase the chances of reaching your project goals.
Step 6. Assess the effectiveness of your project risk management process
In fact, this step presupposes an unbiased evaluation of your response actions. The management team needs to know how good the organization is at executing the defined mitigation strategies.
So, identify and monitor the metrics to measure how well your risk and security management programs work. To help you set the key tracking metrics, below we will list the most common ones:
- Number of risks identified and those that occurred
- Number of recurring threats
- Predicted risk impact compared to actual impact
- Percentage of threats mitigated
- Cost of risk management programs
This evaluation will provide you with a better understanding of your risk exposure level and weak points that should be addressed immediately.
Digital technology application in risk management
Cloud computing, AI, and big data security analytics greatly influence risk management which largely relies on information. These tech advancements make it easier for companies to detect existing threats, make more reliable projections, and improve business risk analysis results. Even now, 71 percent of leaders—who are deemed highly effective at managing risks—successfully leverage data and new technology.
These days, automation tools not only streamline risk analysis and monitoring processes, but they also eliminate manual tasks and empower specialists to assess a broader range of risk factors. So, it is no surprise that 85 percent of professionals will consider new tools to automate their compliance processes in 2022.
Preparing for the new landscape
Risks are an everyday reality in all projects and industries. Risk analysis, business data analytics, and mitigation strategies help you approach threats rationally and deal with potential issues seamlessly.
Being reactive is no longer an option. We believe that analytics services are vital for managing risks proactively. At TEAM International, we have helped hundreds of companies initiate and enhance their risk and business functions with data-driven solutions. Contact us to get more details about how our services can benefit your organization.