Creating a risk management plan is simply about formalizing that process and being able to devote your resources more effectively. The first step in this process, and one of the most important, is identifying your risks.
You will need to make a list of all the specific risks that could impact your organization. This can be a daunting task, especially for new businesses that don’t have years of experience and history to rely on. Fortunately, there are some strategies you can turn to for help:
1. Break down the big picture
When beginning the risk management process, identifying risks can be overwhelming. Begin with a high-level analysis. What are the most obvious things that could go wrong in your company or industry? These can be based on your business strategy and daily activities.
Risk is multi-faceted. There are many categories: competitive, financial, safety, operational, technological, legal, political, reputational, and so on. Break down your organization into each of these areas, and consider the individual weaknesses of each department.
Asking yourself insightful questions can reveal weaknesses in your organization that you may not have considered. For example, is your manufacturing process fully safe? Are all your employees properly trained? What would happen if you lost your biggest customer? If a serious incident occurred, would you know how to handle it and who was responsible? If you think of a question like this that you cannot answer, it represents a risk that needs to be better managed.
2. Be pessimistic
What is the worst thing that could happen to your organization? If there was a day where everything went wrong, what would that sequence of events look like? While being overly pessimistic may not be the best way to run a business, it’s incredibly helpful when identifying risks.
At this stage, it’s important to avoid overconfidence and thinking something “can’t” or “won’t” happen. Challenge all of your assumptions about potential risks, and be prepared for any or all of them to occur.
3. Consult an expert
You likely already have relationships with multiple people that could help you identify risks, such as your insurance broker, accountant, or financial advisor.
Insurance brokers know your claim history, which means they can provide insight on trends. If you experience the same type of losses multiple times, it suggests there’s a risk that is improperly managed. Brokers can also play a role in helping you to assess your business risks and recommending insurance coverage to help protect you against them in case they occur. If they do not provide this assessment service, they are probably able to recommend a good consultant who can.
Similarly, accountants and financial advisors will have insight on the types of payments you are repeatedly making. They can also advise and identify financial risk throughout the organization.
4. Conduct internal research
If you manage your own claims and losses or have employees that work closely with them, you can perform internal research to identify risks across the organization. With simple observation, you may be able to recognize areas where things are not being done correctly. Abnormally high costs in one department may also suggest an unmitigated risk.
With data and trend analysis, you can identify the root causes of occurrences. Incidents and near-misses are key indicators of problem areas that need to be addressed by the risk management team.
5. Conduct external research
Every industry has its own unique trends and common occurrences. Unless you are an organization in a brand new industry, you can learn a lot about identifying risks from those who have gone before you.
Professional organizations may be able to provide expert insight on the risks typically found in organizations similar to yours. They could access industry research or trend reports that will highlight common risks.
You can also pay attention to your competitors or companies similar to yours. Any losses, risk management successes, news releases, or even legal precedents can help you identify the same types of risks in your organization.
6. Seek employee feedback regularly
Everyone from the frontline staff to the CEO will have a different perspective of the organization and the risks they come across while performing their job. As such, employees are one of the most valuable resources in identifying risks.
All employees, especially key stakeholders, may have some insight on risks that they encounter in in day-to-day business practices that you would not have otherwise considered.
You can seek employee feedback anonymously, in one-on-one interviews, or in a group setting. Allowing anonymous incident reporting may increase the likelihood of response from employees who are worried about repercussions from speaking up, while group discussions may increase the amount of brainstorming and lead to a higher number of identified risks.
7. Analyze customer complaints
Just as asking employees can be valuable, customers may help in risk identification as well. What do customers most often complain about or what types of issues do they report? If there are multiple people complaining about the same process, it’s likely that there is an associated risk.
This strategy is most useful for organizations where customers visit a physical location, such as a storefront. However, even solely digital customers may provide valuable feedback that can help identify and mitigate against reputational risks.
8. Use models or software
There are many business and technological strategies that help identify and classify risks. Simulations, scenario role-playing, SWOT analysis, flowcharts, and risk mapping are just some of them. (Risk map blog)
There are also many organizations that provide information on identifying unique organizational risks. For example, ClearRisk offers this as just one of its many applications!
Congratulations! You’ve identified the risks facing your organization. But there are probably a lot of them: too many to handle at once. What next? You need to create a risk management plan that efficiently tackles the most risky scenarios.
