10 Important Principles and Process of Risk Management

Principles and Process of Risk Management

The technique of limiting or managing risk is known as risk management. It begins with the identification and assessment of risk, followed by the most efficient use of resources to monitor and reduce that risk. Uncertainty is a common source of risk. This risk can arise in businesses as a result of market uncertainty (demand, supply, and the stock market), project failure, accidents, natural catastrophes, and so on. Depending on the type of risk, several tools are available to deal with it.

In ideal risk management, a risk prioritizing approach is followed, in which the risks that represent the greatest danger of significant loss and have the highest likelihood of occurring are addressed first. 

Principles of Risk Management

1. Organizational Context:

Various aspects of the environment have an impact on every firm to differing degrees (Political, Social, Legal, and Technological, Societal, etc). For example, one company may be impervious to changes in import duties, whilst another company in the same industry and environment may be in grave danger. Communication channels, company culture, and risk management methods all varied significantly. As a result, risk management should be able to offer value to the business and be an integrated part of the process.

2. Involvement of the Stakeholders:

Stakeholders should be included in the risk management process at every stage of decision-making. They must be conscious of even the little decision they make. It is also in the organization’s best interests to comprehend the role that stakeholders may play at each stage.

3. Organizational Objectives:

When dealing with a risk, it’s critical to remember the organization’s goals. The ambiguity should be openly addressed in the risk management process. This necessitates being methodical and disciplined, as well as keeping the broader picture in mind.

4. Reporting:

Communication is crucial in risk management. It is necessary to verify the accuracy of the information. Decisions should be based on the most up-to-date facts available, and there should be transparency and visibility in the process.

5. Roles and Responsibilities:

Risk management must be open and transparent. It should consider human elements and ensure that everyone understands their responsibilities at each level of the risk management process.

6. Support Structure:

The relevance of the risk management team is shown by the support structure. Members of the team must be active, dedicated, and adaptable to change. Every team member should be aware of his or her role at each step of the project management lifecycle.

7. Early Warning Indicators:

Keep track of early warning indications that danger is about to become a problem. This is accomplished by ensuring that everyone at every level communicates with one another. It’s also critical to equip and empower everyone to cope with the threat at their own level.

8. Review Cycle:

At each phase of the risk management process – identity, analyze, respond, and review – keep reviewing inputs. Each cycle’s observations are somewhat different. Determine which interventions are appropriate and which are not.

9. Supportive Culture:

Create a culture of questioning and debating through brainstorming and enabling a culture of questioning and debating. This will encourage individuals to take part in more activities.

10. Continual Improvement:

Possess the ability to improve and enhance risk management techniques and approaches. Use what you’ve learned to change the way you think about and manage continuing risk. It can be useful to conduct a a series of collaborative meetings to reflect on the work and identify areas that can be improved for the future.

Process of Risk Management

There are various organizations that establish risk management ideas and recommendations. The steps are, for the most part, the same. In various types of risk, there are modest changes in the cycle.

The risks inherent in project management, for example, differ from the risks involved in finance. This explains why certain aspects of the risk management approach have changed. The ISO, on the other hand, has established some procedures for the system, which are nearly universally applicable to all types of risk. 

The principles may be applied to all aspects of an organization’s life cycle, including strategy and decision-making, operations, procedures, functions, projects, products, services, and assets.

The risk management process, according to ISO 31000 (Risk Management – Principles and Guidelines on Implementation), consists of the following phases and sub-processes:

  • Establishing the Context
  • Identification
  • Assessment

The above sub-processes are described in detail as:

Establishing the Context

Establishing the context entails identifying all potential hazards and properly analyzing their repercussions. Various risk management techniques are considered, and conclusions are taken. The following is a breakdown of the many actions at this stage:

  • Identification of risk in one particular domain.
  • Planning out the entire management process.
  • Mapping the manifestations of the risk, identification of objectives of risk, etc.
  • Outlining a framework.
  • Designing an analysis of risks involved at each stage.
  • Deciding upon the risk solution/s.


The next phase is to identify threats or possible dangers if the context has been effectively defined. This identification might take place at the source level or the problem level. Source analysis entails determining the source of hazards and implementing suitable risk mitigation strategies. This danger might come from the system’s internal or external sources. Employees of the firm, operational inefficiencies in a certain procedure, and so on are examples of risk sources. 

Problem analysis, on the other hand, examines the risk’s consequence rather than its source. For instance, a decrease in productivity, the possibility of losing money, and so forth.

Depending on the industry, organizational culture, and other considerations, different methods are used. However, the following are some popular ways for determining risk:

i. Risk Identification based on Taxonomy: The various risk sources are broken out, hence the taxonomy. A questionnaire is built on existing knowledge; the danger lies in the responses to the questions.

ii. Risk identification based on objectives: An organization or any commercial activity has a certain goal or goals. Risk is defined as any action that is believed to be an impediment to achieving the goal.

iii. Scenario-based Risk Identification: Here, numerous scenarios are generated that might represent alternate strategies to attain a goal. When an unfavorable circumstance is produced, a danger is seen as such.

iv. Common Risk Assessment: There are some hazards that are inherent in each sector. Each risk is identified and assessed in a timely manner.


Once the risks have been identified, they are evaluated for their chance of occurrence as well as their potential impact. This method might be simple, as in the case of physical risk assessment, or complex, as in the case of intangible risk assessment. This evaluation is essentially a guessing game, with the plan’s success determined by the best-informed estimate. 

Thus, the help of these processes of risk management can help organizations to get into precise decision-making, operations, procedures, and functions.

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