5 Basic Methods for Risk Management
Charles is a nationally recognized capital markets specialist and educator with over 30 years of experience developing in-depth training programs for burgeoning financial professionals. Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more.
Diane Costagliola is an experienced researcher, librarian, instructor, and writer. She teaches research skills, information literacy, and writing to university students majoring in business and finance. She has published personal finance articles and product reviews covering mortgages, home buying, and foreclosure.
As people begin to age, they usually encounter more health risks. Managing pure risk entails the process of identifying, evaluating, and subjugating these risks—a defensive strategy to prepare for the unexpected. The basic methods for risk management—avoidance, retention, sharing, transferring, and loss prevention and reduction—can apply to all facets of an individual’s life and can pay off in the long run. Here’s a look at these five methods and how they can apply to the management of health risks.
- Avoidance means not participating in activities that could harm you; in the case of health, smoking is a good example.
- Retention acknowledges the inevitability of certain risks, and in terms of health care, it could mean picking a less expensive health insurance plan that has a higher deductible rate.
- Sharing risk can be applied to how employer-based benefits are often more affordable than if an individual gets their own health insurance.
- Transferring risk relates to healthcare in that the cost of the care is transferred to the insurer from the individual, beyond the cost of premiums and a deductible.
- Loss prevention and reduction are used to minimize risk, not eliminate it—the same concept is used in healthcare with preventative care.
What is organisational risk and risk management?
According to the Higher Education Funding Council for England (HEFCE), “risk” is broadly defined as ‘the threat or possibility that an action or event will adversely or beneficially affect an organisation’s ability to achieve its objectives.’
The HEFCE further defines risk management as “a process which provides assurance that: objectives are more likely to be achieved; damaging things will not happen or are less likely to happen; beneficial things will be or are more likely to be achieved.”
While health and safety risks technically fall under operational risks, its effects can spill over into every area of an organisation, such as reputation, finance, security, and environment. It is thus important to have a risk management strategy for health and safety.
This strategy refers to the decision made by the project manager to either accept or reject risk. The choice is made for various reasons, including (but not limited to) the risk isn’t worth taking action on, it’s low probability and big impact, and there’s no known way to reduce it.
Why include risk acceptance?
By accepting risks, you acknowledge that they exist and can potentially impact the project. This allows you to put in place mitigation measures and contingency plans to deal with them if they occur. Risk acceptance also allows you to focus more on the positive aspects of your project while still being prepared for potential problems.
When to include risk acceptance?
A common time to use risk acceptance in project management is during the planning phase. This is when you decide which risks to take on and how to address them down the line. Another time is during the monitoring and controlling phase. This is when you ensure that all accepted risks are being managed properly.
Use risk management software for successful outcomes
Every project is different and will carry its own unique set of risks. Therefore, you must tailor your risk management plan to fit the specific needs of your project. While there is no one-size-fits-all solution, these four strategies provide a good starting point. By understanding these strategies and knowing when to use them, you can ensure a successful outcome for your project.
- Risk avoidance: Risk management software analyzes your project data and provides insights to help you identify potential risks. Once you identify the risks, you can take steps to avoid them.
- Risk reduction: By analyzing your project data, risk management software helps you devise ways to reduce the impact of risks. For example, if you know that a certain supplier is unreliable, you can source your supplies from another vendor.
- Risk transferring: Risk management software helps identify risks that can be transferred to another party. For example, you can purchase insurance to transfer the risk of asset loss to an insurance company.
- Risk acceptance: In some cases, you may have to accept certain risks and take steps to mitigate their impact. For example, if there is a risk of theft, you can install security cameras and hire security guards. Risk management software helps identify such risks, assess their impact, and develop mitigation plans.
Capterra’s Project Management User Survey was conducted in March 2021 among 422 US-based project managers, 367 of which are project management software users, to find out who is using project management software, the features they use or don’t, which ones they wish they had used, and what results they’ve seen from their investment. The qualified respondents are decision-makers or have significant involvement with day-to-day project management at their organization. We worded the questions to ensure that each respondent fully understood the meaning and the topic at hand.