Every business owner wants to be successful. But often they don’t success. There are lots of factors involve with this result. But Good risk management can help to increase the success rate. Risk management is one of the thing that can make difference between success and failure. During project lots of difficulties arise, for which we don’t prepare. If we can assess those difficulties and prepare our action plan to face those difficulties, we will have better chance to become successful. But there are some event occur for what we not prepare at all. These are risk and a good Risk management system deals with those uncertain events which does matter on our project. Many people think, risk management system is difficult. Some of other say it’s boring and doesn’t work in real life. But in our daily life we all are managing risk. During crossing the road or feeding our kids, we are always do risk management. It’s a since that is developing for a quite a long time. Here in this article I will tell you 5 easy steps to understand the Risk Management System..
Focused Key Words
According to ISO 31000, risk is the “effect of uncertainty on objectives”
Step 1: Understand the delimitation of risk:
Risk management manages risk. So you need to understand what is Risk? There are lot of definition on risk. Here I will explain little bit so that you don’t have to memorize the definition but you can understand it by heart. Do you think Risk is definition of Uncertainty? Although its sound almost similar but there is difference. All Uncertainty is not risk but all risk are uncertain. For example: you are managing a project in Canada. You don’t know, will there any rain on Kazakhstan tomorrow which is uncertain to you. But you really don’t care about this uncertainty. So we can say “Risk is subset of uncertainty that matters”. Anything that not uncertain not a risk, it might be a problem, it might be an issue, it might be a barriers, requirement or something else but it’s not a risk, if it doesn’t matter it is not a risk either. But what do we know it matters? If it has impact on my object is a risk. In project we set some objects or goals and we concern the thing might affect those objectives. As world is full of uncertainties, we need to filter those only
- Which one we need to know about?
- Which one we need to be prepared for?
- Which one need to be respond to proactively?
Step 2: Understand which one is big risk?
Not only for project, in real life have we responded to those which does matter. Not all the risk are same and applicable for everybody. We need to measure the impact. You can measure how big the with two dimension:
- How much uncertain?
- How much impact?
So we have to think about provability and impact. Now need to know from where these coming from? Different thing related with different people, because different people (Group) have different objectives. We have strategic risk which involve with the people involve with strategic plan, technical risk for them who own technical objectives. So there are different layers and levels.
Step 3: Understanding different type of uncertainty:
For risk management you need to understand different type of uncertainty. Here are some terminology I am explaining to understand different type of uncertainty Stochastis uncertainty (Possible Event) Will it happen or not happen? Example the supplier will continue their business? Yes or No. This is sort of binary type of answer Aleatoric uncertainty (Variability) Range of possible result. For example a die has six sides. If you through the you may get result 1,2,3,4,5,6. But you don’t know what actual result is coming. May be someone is starting develop a software but he not quite sure how many programmer will be needed or how many day it will take time for go live. Epistemic uncertainty (Ambiguity) This is about knowledge. Example, you are doing a project but you are not really sure about the requirement. Ontological uncertainty That we never think it before. These are uncertainty with negative impact. But there some uncertainty that has positive impact too. For example you need watering on ground, but if rain come, it will make you easy for watering.
Step 4: Applying Risk management Process
Risk management process is a set of task and function that need to be perform for ensure Standard Risk Management System.
- Identify– Need to identify the risk so that staff become aware.
- Analyze and prioritize– Understand how big the risk is and prioritize those for making actionable plan.
- Plan and schedule– Formulate strategies, plans, change requests, and actions and simulate it into the standard day-to-day processes and infrastructure
- Track and report– Monitor the action plan and produce report. Heat map is one of the great tool that track and report all risk elements for proper control.
- Control– Take necessary steps to control the risk where you see some disputes from standard planning. Learn – Risk learning formalizes the lessons learned and uses tools to capture, categorize, and index that knowledge in a reusable form that can be shared with others.
Step 5: Understand Risk Attitude
Actually people manage project. Process and machine does not manage risk, people manage risk. So understand risk atticude is very important. For risk management you need to understand the Attitude, behavior and culture of people. If you have a good risk management process and people not follow it, there is now way to success. There are different kind of people, some of them like risk, some of them dislike risk and many of them do it as they have to do as a part of their job. You need to think the prescriptive of the project to select the right people. On some area you need to take extra care, some where you need some ambitious to be successful.
This is a article about risk management on Supply chain management.