At Slick Shield, our business is risk management. We manufacture products intended to minimize and eliminate risks that could cost your business thousands in expensive litigation cases.
But our products should only be part of your business’s overall risk management plan. Risk management plans are comprehensive strategies that minimize and mitigate the risks specific to your business. While they may involve careful analysis and design at the outset, effective risk management plans prevent huge unforeseen costs and headaches down the road. They also significantly strengthen your defense in litigation cases. Here at Slick Shield, we’ve put together an easy-reference guide to help you establish and implement an effective risk management plan for your business.
The first part of establishing a risk management plan is identifying what the risks are. Many of the biggest risks to your business are easy to spot. What’s especially important in this stage of the game is identifying the risks that are NOT so obvious – those that seem unrelated or insignificant. It is these “hidden” risks that can catch businesses unawares and wreak huge havoc. Be sure to consider any and all scenarios, and gather input from your team members. Make a master list of all the identified risks.
Now that you’ve identified the risks to your business, it’s time to assess them. This will enable you to organize your master list of risks into a ranked order and determine which ones need the most priority in your risk management planning.
Assessing each risk involves two steps:
Sometimes, risk management planners use a numerical system to estimate probability, such as a 1-10 scale or percentages. In other cases, a qualitative system is used, such as “Very likely” to “Somewhat likely” to “Unlikely”, etc.
For each risk, ask the following questions: Cost – If the risk were to occur, what would be the direct impact to the budget? Scope –Would the risk prevent the project from being completed as originally envisioned, or the business from operating as originally intended? Schedule – What delays would the risk cause in product manufacture and other operations? Performance/quality – Would the risk cause a decrease or change in the quality of the product?
After answering these questions, you can either give the risk a qualitative value, such as “Catastrophic”, “Moderate”, “Negligible”, etc., or you can assign a numerical value in terms of total dollars lost if the risk were to occur. For reasons regarding the budget and what to set aside for risk occurrence (which we’ll discuss below), it is most helpful to determine the total dollars lost.
Now that you’ve assessed each risk, organize them in order of highest priority (highest probability + biggest impact) to lowest priority (lowest probability + smallest impact). You and your team members can now see exactly which risks need the most attention and careful planning.
For the high-priority risks, it is wise to determine ahead of time how your team will respond if the risk occurs. Of course this can be done for every risk, but the lower-priority risks generally present more straightforward scenarios that don’t require as much coordination and strategy.
There are several types of response options:
Avoidance – Change the project or business model to avoid the risk Transference – Shift the impact of the risk to a third party, like a subcontractor. Deferment – Determine how to address this risk at a later time (this is often an appropriate option for the lower-priority risks) Acceptance – Accept the risk and absorb its impact. Mitigation – Take steps to reduce the impact of the risk. This response requires the creation of a contingency plan, below.
Risk Contingency Planning.
A contingency plan outlines exactly how your team will mitigate the risk. It should contain three parts:
Contingency can also factor into your budget, as money set aside for risk occurrence. It’s not necessary to match contingency with the total costs of the risks it’s covering. Instead, most businesses determine contingency by multiplying the total cost of the risk by its probability. So for example, if a risk costs $80,000 and there’s a 60% chance of it happening, then $48,000 should be put in contingency.
Risk Tracking and Reporting.
Hopefully, though, you won’t have to fall back on a contingency plan, or any type of risk response for that matter. After all, the most effective risk management plan is the one that stops risks BEFORE they occur. At Slick Shield, we know that such a plan requires a coordinated, team-wide system of tracking and reporting. Every team member should be made aware of the project risks so they can know what to look for and when to report a concern. A Risk Management Supervisor should be designated to receive and investigate concerns. This individual should also keep a track record of concerns and risk indicators so that any patterns can be identified. A number of risk management software suites are available to aid with this process, which we recommend as they are convenient and helpful.
Stress to your team members that even the smallest concern will not go unacknowledged. Vigilance is key in establishing a preventative tracking and reporting system that gives your business the power to stop risks before they occur.
We hope this guide helps you construct an effective risk management plan for your business. Be sure to check out our risk prevention products and see how they can be part of your risk management plan. For any further questions about risk management, contact us!