Three Steps to Create a Basic Risk Management System

Business owners face a variety of risks as they build and grow their companies. Unforeseen challenges, like a global pandemic, are inevitable but hard to protect against. Other threats are inherent to the type of business you have. In those cases, an established risk management system can help you reduce your potential downside. 

Security breaches, cyber-attacks, natural disasters, contractual issues, and physical illnesses and injuries are all examples of foreseen risks for which you can create a risk management system. In this article, we’ll outline a few simple steps that can get you on the right path to developing your own basic risk management system. 

The Risk Management Process

Establishing a risk management process that is comprehensive, yet easy to maintain, can be a challenge. The goal is to streamline your process so that you can implement a response that helps mitigate risks when they are identified. 

Managing risks effectively allows you to efficiently plan for and implement the use of your resources. Risk mitigation also allows you to provide a safer workplace for your employees by preventing physical injuries and illnesses. For many businesses, a three-step process is enough to get you started.

The Three-Step Process

1. Identify potential risks

Identifying risk should be a positive team experience that promotes learning and increases risk awareness. To create a simple process, use the experiences of your entire team. Have one central place where each team member can document potential risks. 

• Create a risk breakdown structure that identifies the most severe risks and also allows for documenting risks according to immediate, intermediate, and long-term projections. 

• Use this information to create a project risk log. The log will be the backbone of your risk management strategy. Use the log to track risk, preventative steps, and resolutions. 

• The data from one project risk log will help populate and speed up the process of formulating other logs for each incoming project. 

• The identification of risk will be an ongoing job throughout the lifecycle of the project.

2. Treat the risks

Once you’ve identified potential risks, you can incorporate efficient ways to mitigate each one. Documenting how each potential risk is handled will eventually result in a risk management blueprint that allows you to refer to prior risk management techniques to inform future decisions.

• Address the highest priority risk first, and assign team members to create a plan to solve or mitigate the risk. 

3. Monitor each risk

Establish clear communication channels to allow for frequent updates about newly discovered risks. You should also define the way that you or your team can change the status of each risk if the threat becomes more imminent or is neutralized. It may be beneficial to assign the task of monitoring ongoing potential threats to specific team members. 

Determine What Works for Your Company

Whether you use risk management software or a simple communication tool with documentation, establishing a successful risk management system is worth the investment. Once you’ve worked through a few projects, future ones will flow easier and encounter fewer bumps in the road. The effort you put into identifying and mitigating risks pays for itself many times over if you’re able to neutralize one substantial risk before any damage is done. 

As with all good things, establishing risk management protocols and getting your team on board is often the most challenging part of the process. Once you have an effective protocol in place and each team member knows their responsibility in identifying and monitoring risks, the process becomes second-nature and is no longer time-intensive. 

When possible, avoid attempting to assess risks alone. You need the eyes and experience of each team member to build an effective risk management system. You may want to involve those outside your company, such as legal counsel, contractors, or other resources for their perspective on perceived risks. Encourage the constant evaluation of new risks, make sure they are added to the risk log, and ascertain the best treatment process for each risk.

Review your overall process regularly. Are things negatively impacting your business that should have been identified beforehand? Are there appropriate triggers in place that allow a coordinated response once the danger has been identified? Think of your risk management strategy as a living procedure that will grow and change with your business. 

An effective risk management strategy is one that allows for flexibility and creative solutions while learning from what has and has not worked in the past. If you’d like to know more about risk management for construction businesses, you can read about 5 risk management systems that we recommend, or get in touch with Daffern Law Firm directly to assess your risks together.