When it comes to risk management, the scary part is often what you don’t know. Having a Risk Management Program in place can help increase the company’s ability to meet and hopefully exceed expectations. There are many ways to set up an effective program. Here are some basic guidelines recommended by risk management experts:
Start at the Top
Your risk management program should be led by your top management team. Company leaders have knowledge of your organization’s goals and what it takes for effective risk management. And they can set the stage for a risk-aware culture that’s in everyone’s day-to-day operations.
Create a risk management policy
Every contractor has his or her own tolerance for risk and approach to how it should be handled. Your risk management policy should be in writing and clearly establish responsibilities of everyone throughout the organization.
Identify your risk
Identifying risk is an ongoing process. An internal audit can help identify risks associated with your objectives and key business areas such as long-term strategy, day-to-day operations, financial management, contracts, and regulatory compliance. Your insurance company or an outside risk consultant can help you perform the internal audit, but be sure to be involved in the process.
Assess and prioritize
It’s not practical, nor cost effective, to address every risk your company may face. To help you focus on what’s most important, you should assess each identified risk in terms of its impact on your company and the probability of the risk’s happening. A simple one-page worksheet may be all you need. The key is having a systematic way to outline, evaluate, and score all the risks you might face. This rating will help you more objectively prioritize your risk.
Make a plan
There are several ways to handle risk, including:
- Control—reduce the impact and chance of a risk’s occurring.
- Avoidance—avoid activities that could cause risk, for example riskier projects.
- Contractual transfer—contractually shift the risk to another party.
- Financing—arrange for internal company funding or external funding, such as insurance, to pay for possible losses when they occur.
No matter which course you take, always consider the cost of implementing your strategy compared to the expected risk reduction benefits.
Make sure everyone in your company is aware of the risks and corresponding responsibilities that fall into their area, as well as how they impact the organization. This includes promptly reporting new risks and failures and brainstorming ideas on how to continuously improve the program.
Monitor the effectiveness of your program
Your program should be regularly monitored. Make risk management a regular item on your management meeting agendas if it isn’t already. This will prevent it from being buried.
An effective risk management program will continually adapt based on how it is working and ways you can improve it. You should also adjust your risk management plan based on changes in organizational goals, risk management techniques, and even attitude toward risk.