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A Guide to Understanding the Risk Management Process

Parashar Joshi
Risk management is of utmost importance to one and all. Read on to know the basics of a risk management process and the different steps that are involved in it.
Risk comes from not knowing what you're doing. - Warren Buffet
Each and every person, journeys through life taking some risk. All that varies from person to person is the degree and amount of risk that is taken.
For example, an unwell person not taking medicine is different as compared to a multinational company investing millions of dollars in a new line of business.
Risk management is something that is applicable to one and all, regardless of whether you happen to be a businessman, an entrepreneur, a freelancer, a self-employed individual, or a 9 to 5 working employee. For corporate biggies, a properly designed risk management process can often prove to be a life-saver. Here are some basics of this concept.

What is a Risk Management Process?

The concept behind the process of risk management is extremely simple. It is the process of anticipating and analyzing threats and coming up with effective and efficient ways of managing as well as eradicating them. Here are the different steps that are involved in this process:


The first step involves identifying risks. Certain ones could be quite obvious whereas a few others may need a certain amount of anticipation. There could be various types of risks such as:
  • business
  • financial
  • commercial market-related
  • technological
  • short-term, long-term
  • personal
Try doing a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis; it will give you systematic results, which will prove beneficial in identification. Identifying and anticipating risks is extremely important, as it sets the stage for all further action and steps as part of the overall plan.


Once all the risks have been identified, it is time to analyze and scrutinize each one of them. Risk analysis should be done both qualitatively as well as quantitatively.Determine how big a threat each risk is, what could be its consequence, its impact, etc. Each one will have a likelihood factor, i.e., a probability factor.
On the basis of its impact and its likelihood factor, you can prioritize different risks as serious(extreme,very high, high), moderate(medium), mild(low), etc.
Use a color coding system for easy graphical analysis. Once you have all this data laid out in front of you, you will be in a position to rank individual ones.


This basically involves comparing the identified and analyzed risks with your individual goals or your company's preset goals and objectives. You can then choose to grade risks and decide the future course of action to be taken, based on how severely it is likely to impact your goals, objectives, and targets.

Treatment and Contingency Plan

The next step involves preparing a treatment and contingency plan. It is vital from the perspective of enterprise risk management.
What will you do if the risk materializes? Can you do something to overcome it? Can you take some measures to lessen its impact? You should think about all these questions and come up with a treatment and contingency plan for the same. It should include ways in which to control as well as overcome the conditions.


This is not the next step as such, rather it is something that should happen on a continuous basis at all stages of the process. Have a RMMM (Risk Mitigation, Monitoring, and Management) plan in place for the same.
You can also make use of certain risk management software for monitoring purpose. At the same time, there should be proper communication between the different departments involved in the process. Communication is vital because it can affect the entire process both negatively as well as positively.
These were some basics regarding how the process works. Depending on individual requirements and needs, it can always be customized provided you have enough knowledge and research data available at hand. Because, as the popular saying goes, "Risk varies inversely with knowledge."