How Risk Management and Risk Analysis Works

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How Risk Management and Risk Analysis WorksHow Risk Management and Risk Analysis Works

A few factors that contribute to business risks include uncertainty in financial markets, threats from project failures at any phase, legal liabilities, credit risks, accidents, or even events of uncertain or unpredictable root-causes. Risk management ideally will prioritize the risks, placing those with the greatest loss or impact and the greatest probability of occurring at the top of the list.

In many organizations, the risks are well known and the necessary control measures are easy to apply. For example, you may work for a company where employees regularly lift heavy loads, so there is the potential for back injury. Or you may own a business that heavily utilizes internet technologies, which can introduce security risks. So what is the general risk analysis process that is used? It’s typically split up into four stages:

  1. Identifying the Risk
  2. Assessing the Risk
  3. Developing Responses to the Risk
  4. Developing a Contingency Plan or Preventative Measures for the Risk

Identifying the risk involves looking at the source or problem at hand and whether it will affect any company objectives. The chosen method of identifying risks will depend on the business culture, industry practices, and compliance. Once the root causes are identified, it’s time to assess the risk. This should produce statistics from past business experiences to determine the likelihood of the risk occurring.

Ideally after a risk is identified and assessed, it can be avoided. But an important part of developing responses to the risk is asking what can be done to manage it, should it happen anyway. The final step in risk analysis is to develop contingency plans, which are designed to reduce the impact if the risk does materialize.

This is a very basic explanation of how CT risk management and risk analysis works. With 40-plus years serving businesses throughout our communities, Sinclair Risk & Financial Management has been at the forefront of changing the way advisers look at risk and develop strategies to preserve a company’s balance sheet while increasing profits. Call us today at (877) 602-2305.