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How to Make a Risk Management Plan (Template Included)

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You identify them, record them, monitor them and plan for them: risks are an inherent part of every project. Some project risks are bound to become problem areas—like executing a project over the holidays and having to plan the project timeline around them. But there are many risks within any given project that, without risk assessment and risk mitigation strategies, can come as unwelcome surprises to you and your project management team.

That’s where a risk management plan comes in—to help mitigate risks before they become problems. But first, what is project risk management ?

What Is Risk Management?

Risk management is an arm of project management that deals with managing potential project risks. Managing your risks is arguably one of the most important aspects of project management.

The risk management process has these main steps:

  • Risk Identification: The first step to manage project risks is to identify them. You’ll need to use data sources such as information from past projects or subject matter experts’ opinions to estimate all the potential risks that can impact your project.
  • Risk Assessment: Once you have identified your project risks, you’ll need to prioritize them by looking at their likelihood and level of impact.
  • Risk Mitigation: Now it’s time to create a contingency plan with risk mitigation actions to manage your project risks. You also need to define which team members will be risk owners, responsible for monitoring and controlling risks.
  • Risk Monitoring: Risks must be monitored throughout the project life cycle so that they can be controlled.

If one risk that’s passed your threshold has its conditions met, it can put your entire project plan in jeopardy. There isn’t usually just one risk per project, either; there are many risk categories that require assessment and discussion with your stakeholders.

That’s why risk management needs to be both a proactive and reactive process that is constant throughout the project life cycle. Now let’s define what a risk management plan is.

What Is a Risk Management Plan?

A risk management plan defines how your project’s risk management process will be executed. That includes the budget , tools and approaches that will be used to perform risk identification, assessment, mitigation and monitoring activities.

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Risk Management Plan Template

Use this free Risk Management Plan Template for Word to manage your projects better.

A risk management plan usually includes:

  • Methodology: Define the tools and approaches that will be used to perform risk management activities such as risk assessment, risk analysis and risk mitigation strategies.
  • Risk Register: A risk register is a chart where you can document all the risk identification information of your project.
  • Risk Breakdown Structure: It’s a chart that allows you to identify risk categories and the hierarchical structure of project risks.
  • Risk Assessment Matrix: A risk assessment matrix allows you to analyze the likelihood and the impact of project risks so you can prioritize them.
  • Risk Response Plan: A risk response plan is a project management document that explains the risk mitigation strategies that will be employed to manage your project risks.
  • Roles and responsibilities: The risk management team members have responsibilities as risk owners. They need to monitor project risks and supervise their risk response actions.
  • Budget: Have a section where you identify the funds required to perform your risk management activities.
  • Timing: Include a section to define the schedule for the risk management activities.

How to Make a Risk Management Plan

For every web design and development project, construction project or product design, there will be risks. That’s truly just the nature of project management. But that’s also why it’s always best to get ahead of them as much as possible by developing a risk management plan. The steps to make a risk management plan are outlined below.

1. Risk Identification

Risk identification occurs at the beginning of the project planning phase, as well as throughout the project life cycle. While many risks are considered “known risks,” others might require additional research to discover.

You can create a risk breakdown structure to identify all your project risks and classify them into risk categories. You can do this by interviewing all project stakeholders and industry experts. Many project risks can be divided up into risk categories, like technical or organizational, and listed out by specific sub-categories like technology, interfaces, performance, logistics, budget, etc. Additionally, create a risk register that you can share with everyone you interviewed for a centralized location of all known risks revealed during the identification phase.

You can conveniently create a risk register for your project using online project management software. For example, use the list view on ProjectManager to capture all project risks, add what level of priority they are and assign a team member to own identify and resolve them. Better than to-do list apps, you can attach files, tags and monitor progress. Track the percentage complete and even view your risks from the project menu. Keep risks from derailing your project by signing up for a free trial of ProjectManager.

Risk management feature in ProjectManager

2. Risk Assessment

In this next phase, you’ll review the qualitative and quantitative impact of the risk—like the likelihood of the risk occurring versus the impact it would have on your project—and map that out into a risk assessment matrix

First, you’ll do this by assigning the risk likelihood a score from low probability to high probability. Then, you’ll map out your risk impact from low to medium to high and assign each a score. This will give you an idea of how likely the risk is to impact the success of the project, as well as how urgent the response will need to be.

To make it efficient for all risk management team members and project stakeholders to understand the risk assessment matrix, assign an overall risk score by multiplying your impact level score with your risk probability score.

3. Create a Risk Response Plan

A risk response is the action plan that is taken to mitigate project risks when they occur. The risk response plan includes the risk mitigation strategies that you’ll execute to mitigate the impact of risks in your project. Doing this usually comes with a price—at the expense of your time, or your budget. So you’ll want to allocate resources, time and money for your risk management needs prior to creating your risk management plan.

4. Assign Risk Owners

Additionally, you’ll also want to assign a risk owner to each project risk. Those risk owners become accountable for monitoring the risks that are assigned to them and supervising the execution of the risk response if needed.

Related: Risk Tracking Template

When you create your risk register and risk assessment matrix, list out the risk owners, that way no one is confused as to who will need to implement the risk response strategies once the project risks occur, and each risk owner can take immediate action.

Be sure to record what the exact risk response is for each project risk with a risk register and have your risk response plan it approved by all stakeholders before implementation. That way you can have a record of the issue and the resolution to review once the entire project is finalized.

5. Understand Your Triggers

This can happen with or without a risk already having impacted your project—especially during project milestones as a means of reviewing project progress. If they have, consider reclassifying those existing risks.

Even if those triggers haven’t been met, it’s best to come up with a backup plan as the project progresses—maybe the conditions for a certain risk won’t exist after a certain point has been reached in the project.

6. Make a Backup Plan

Consider your risk register and risk assessment matrix a living document. Your project risks can change in classification at any point during your project, and because of that, it’s important you come up with a contingency plan as part of your process.

Contingency planning includes discovering new risks during project milestones and reevaluating existing risks to see if any conditions for those risks have been met. Any reclassification of a risk means adjusting your contingency plan just a little bit.

7. Measure Your Risk Threshold

Measuring your risk threshold is all about discovering which risk is too high and consulting with your project stakeholders to consider whether or not it’s worth it to continue the project—worth it whether in time, money or scope .

Here’s how the risk threshold is typically determined: consider your risks that have a score of “very high”, or more than a few “high” scores, and consult with your leadership team and project stakeholders to determine if the project itself may be at risk of failure. Project risks that require additional consultation are risks that have passed the risk threshold.

To keep a close eye on risk as they raise issues in your project, use project management software. ProjectManager has real-time dashboards that are embedded in our tool, unlike other software where you have to build them yourself. We automatically calculate the health of your project, checking if you’re on time or running behind. Get a high-level view of how much you’re spending, progress and more. The quicker you identify risk, the faster you can resolve it.

Free Risk Management Plan Template

This free risk management plan template will help you prepare your team for any risks inherent in your project. This Word document includes sections for your risk management methodology, risk register, risk breakdown structure and more. It’s so thorough, you’re sure to be ready for whatever comes your way. Download your template today.

risk management for business plan

Best Practices for Maintaining Your Risk Management Plan

Risk management plans only fail in a few ways: incrementally because of insufficient budget, via modeling errors or by ignoring your risks outright.

Your risk management plan is one that is constantly evolving throughout the course of the project life cycle, from beginning to end. So the best practices are to focus on the monitoring phase of the risk management plan. Continue to evaluate and reevaluate your risks and their scores, and address risks at every project milestone.

Project dashboards and other risk tracking features can be a lifesaver when it comes to maintaining your risk management plan. Watch the video below to see just how important project management dashboards, live data and project reports can be when it comes to keeping your projects on track and on budget.

In addition to your routine risk monitoring, at each milestone, conduct another round of interviews with the same checklist you used at the beginning of the project, and re-interview project stakeholders, risk management team members, customers (if applicable) and industry experts.

Record their answers, adjust your risk register and risk assessment matrix if necessary, and report all relevant updates of your risk management plan to key project stakeholders. This process and level of transparency will help you to identify any new risks to be assessed and will let you know if any previous risks have expired.

How ProjectManager Can Help With Your Risk Management Plan

A risk management plan is only as good as the risk management features you have to implement and track them. ProjectManager is online project management software that lets you view risks directly in the project menu. You can tag risks as open or closed and even make a risk matrix directly in the software. You get visibility into risks and can track them in real time, sharing and viewing the risk history.

Risk management popup in ProjectManager

Tracking & Monitor Risks in Real Time

Managing risk is only the start. You must also monitor risk and track it from the point that you first identified it. Real-time dashboards give you a high-level view of slippage, workload, cost and more. Customizable reports can be shared with stakeholders and filtered to show only what they need to see. Risk tracking has never been easier.

Screenshot of the project status report in ProjectManager, ideal for risk management

Risks are bound to happen no matter the project. But if you have the right tools to better navigate the risk management planning process, you can better mitigate errors. ProjectManager is online project management software that updates in real time, giving you all the latest information on your risks, issues and changes. Start a free 30-day trial and start managing your risks better.

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What Is Risk Management & Why Is It Important?

Hand holding a stack of blocks that spell risk, which are preventing a stack of dominos from toppling into human figurines

  • 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

Access your free e-book today.

What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

  • Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
  • Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
  • Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

  • Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
  • Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
  • Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
  • Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Strategy Execution | Successfully implement strategy within your organization | Learn More

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

How to Formulate a Successful Business Strategy | Access Your Free E-Book | Download Now

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

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About the Author

How To Create an Effective Risk Management Plan for Your Projects

Shubham Gupta profile picture

Shubham Gupta

03-CAP-US-Header-How-to-Create-an-Effective-Risk-Management-Plan-Guide-to-Protect-Your-Project-US-1200x400-DLVR

What is a risk management plan?

Why should you have a risk management plan, a well-thought-out risk management plan helps your project succeed..

Adele, a project manager, was always looking for ways to prove her worth by showcasing her capability of handling difficult projects. One day, she took on a project that most managers would have avoided. The project was complex and included several risk factors; there was a lot that could go wrong, but the potential reward was high. Adele was confident enough to make a strategic risk management plan, and thus she succeeded.

Every day, people in business take risks. Sometimes those risks pay off, sometimes they don’t. But what separates successful risk-takers like Adele from the ones who fail is their readiness for risk management planning.

Like Adele, if you’re a project manager who handles complex projects and wants to mitigate all potential risks, creating a project risk management plan is the way to go.

Not having a risk management strategy is a sure-shot recipe for disaster, but, at the same time, creating one may seem daunting. That’s why we’ve compiled five simple steps to help you create a risk management plan. We explain how these steps prevent potential issues from arising in the first place. But first, let’s learn the basics of risk management planning.

A risk management plan outlines the steps to identify, analyze, assess, and respond to risks. It also includes strategies to monitor risks and minimize their impact on projects, with the aim of maximizing positive project outcomes.

Key components of a project risk management plan

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No project is without risk. By thinking through and planning for risks beforehand, you acknowledge that they are present and need to be addressed. With a well-thought-out risk management plan, you can avoid or mitigate potential issues before they become overwhelming obstacles.

Implementing proper risk management plans and taking the steps required for risk reduction ensure your projects stay on track and accomplish their desired goals. That’s why many recruiters, while hiring project managers, emphasize the ability to manage project risks and consider it one of the most important candidate skills.

the-ability-to-manage-project-risks-is-one-of-the

A well-formed project risk management plan helps:

Keep projects on track and schedule

Avoid costly surprises

Mitigate risks before they become big issues

Facilitate communication among team members

Protect the reputation of your company

By now, it’s clear that a risk management plan is a crucial part of any project. You can’t control the market, weather, or competitors, but you can always take necessary precautions to manage risks. Below, we have five easy steps to create an effective risk response plan for your projects.

project-risk-management-plan

1. Identify risks and create a risk register

The first step is to identify all the risks that could potentially affect your project’s goals. When performed early on in the project lifecycle, risk identification helps take the right steps to mitigate potential issues.

Master this step by brainstorming with your team; analyzing previous projects; and conducting a thorough analysis of your strengths, weaknesses, opportunities, and threats—known as SWOT analysis .

Common risks to identify in your project:

Delays or missed deadlines: This can happen for various reasons, such as underestimating the amount of work required, problems with suppliers, or other external factors.

Scope creep: This is when a project's scope expands, and you find yourself adding more and more features or tasks. It can be tempting to keep going, but scope expansion can quickly lead to cost and time overruns.

Cost overruns: This can be caused by unforeseen costs (e.g., higher-than-expected material prices) or scope creep (when the project scope expands beyond what was initially agreed).

Unanticipated problems with technology or equipment: This could be anything from hardware failures to software compatibility issues.

Once you have the "identified risks" in hand, add them to a risk register . A risk register is a document that lists all the risks, their potential impact, and their likelihood of occurrence. It is a vital tool that helps keep track of all risks and their status.

2. Analyze risks and assess their impact

Risk assessment is a critical step in the risk management process. After you’ve identified and added all risks to a risk register, it’s time to start risk analysis. For each risk, you need to analyze impact and likelihood.

Impact is the potential financial or operational loss that could occur if the risk materializes, and likelihood is the probability that the risk will actually occur. Rate both impact and likelihood on a scale such as low, medium, or high. This will help you identify risks that need to be prioritized.

A few ways to assess risk impact and likelihood:

Use a risk matrix: This tool helps visualize risks and their potential impact on the project.

Use a probability and impact assessment: This involves assessing the likelihood of each risk occurring and its potential impact if it does occur.

Use the Delphi method: This technique involves getting input on the risks and their potential impact from a group of experts.

Use a risk ranking tool: This tool ranks risks based on their impact and likelihood by using a scale such as low, medium, and high.

3. Determine how to deal with risks

Now that you know each risk’s potential impact and likelihood, determine how to deal with them. Depending on the risk and its severity, you can develop a risk mitigation strategy, transfer the risk to another party, or accept the risk. The most important thing is to understand what the risks are and what you can do to mitigate them.

Some common ways to deal with risks:

Transfer the risk: This is when you transfer the risk to another party, such as an insurance company. This can be done for financial risks (e.g., cost overruns), operational risks, or problems with technology.

Accept the risk: This is when you decide that the potential impact of a risk is acceptable and you don’t take any action to mitigate it. This should only be done after careful consideration and should not be used lightly.

Avoid the risk: This is when you take steps to avoid the risk altogether. For example, if there’s a risk of data theft, you install security software to protect your network.

Make sure you choose a method that complements your project risk and helps drive your desired result. By doing so, you can keep project risks under control and minimize the chances of any unwanted surprises.

4. Develop a feasible plan to address risks

Once you have determined the right way to deal with the risks, you need to develop a plan for addressing them. This plan should be realistic, achievable, and tailored to your specific project.

It should include a timeline so you can track the progress of the mitigation steps. It’s crucial to remember that some risks can never be wholly eliminated; they can only be managed to minimize impact to a certain level.

Mathias Ahlgren , founder/CEO at Website Rating, spoke to Capterra about the significance of having a workable risk management plan and shared his viewpoint.

word-image

Planning is the core of resolving any project management risks before the cracks even appear. Having a plan can lead to several solutions. For instance, it can bring together the talents of each employee working on the project and split them up into one unified objective. The key to avoiding any project management risk is to focus on the positives and use them as limiters. This way the project will go as planned.

Mathias Ahlgren

Founder/CEO at Website Rating

Things to consider when creating a risk management plan:

Establish a clear purpose: The plan should have a clear purpose so everyone involved understands what it’s for.

Identify who is responsible for each task: Make sure you identify who is responsible for each task in the plan. This will help ensure the tasks are completed on time.

Assign deadlines: Assign deadlines to each task in the plan to keep everyone on track and focused.

Create a communication plan: Make sure to have a plan to inform team members and stakeholders about the risks and how they are being addressed.

5. Monitor and review risks regularly

Since risk management is an ongoing process, it’s critical to continually monitor and review the risks. This will help ensure risks are being addressed adequately and the plan is still effective.

It’s also important to update the risk management plan as new risks emerge or mitigation steps are completed. By keeping a close eye on the risks, you can ensure your projects stay on track.

Some proven ways for regular risk monitoring and reviewing:

Schedule regular meetings: Schedule regular meetings with the project team to discuss the risks and how they are being addressed.

Communicate with stakeholders regularly: This will help ensure everyone is aware of the risks and how they are being addressed.

Review the risks at each project milestone: This will help ensure the risks are being addressed effectively and the plans are still on track.

Use risk management software : Use it to identify and assess risks early on in the project cycle, create detailed mitigation plans, and monitor and review risks on an ongoing basis.

Ensure success with results-driven project risk planning

Making a risk management plan is an essential step in any project. From cyberattacks to unexpected financials, risks can be tough obstacles to overcome.

However, with a results-driven approach, you can develop a comprehensive understanding of the risks involved in your project and put together an effective plan to address them.

If you’re struggling to manage your project’s risks or facing new ones that seem impossible to conquer, the aforementioned “easy-to-implement” steps can help you seize success.

Want to stay updated with the latest in the project management space? Check out these Capterra resources:

How to manage risks: A guide for project managers

4 risk management strategies for successful project execution

The future of project management is hybrid

How to build the right project management stack for your business

Capterra conducted the Emotional Intelligence in the Workplace Survey in December 2021 of 528 U.S.-based professionals who manage projects at their small to midsize business. Respondents were screened for employment status (full-time), size of business (2 – 500 employees), and involvement in project management (extremely involved).

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About the author.

Shubham Gupta profile picture

Shubham is a writer at Capterra, specializing in project management. His focus is to guide project managers from planning to execution and beyond. His expertise also spans construction, manufacturing, and other related topics. Outside work, Shubham likes to explore the depth of Urdu poetry and enjoys his time with his dog.

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Value and resilience through better risk management

Today’s corporate leaders navigate a complex environment that is changing at an ever-accelerating pace. Digital technology underlies much of the change. Business models are being transformed by new waves of automation, based on robotics and artificial intelligence. Producers and consumers are making faster decisions, with preferences shifting under the influence of social media and trending news. New types of digital companies are exploiting the changes, disrupting traditional market leaders and business models. And as companies digitize more parts of their organization, the danger of cyberattacks and breaches of all kinds grows.

Stay current on your favorite topics

Beyond cyberspace, the risk environment is equally challenging. Regulation enjoys broad popular support in many sectors and regions; where it is tightening, it is putting stresses on profitability. Climate change is affecting operations and consumers and regulators are also making demands for better business conduct in relation to the natural environment. Geopolitical uncertainties alter business conditions and challenge the footprints of multinationals. Corporate reputations are vulnerable to single events, as risks once thought to have a limited probability of occurrence are actually materializing.

The role of the board and senior executives

Risk management at nonfinancial companies has not kept pace with this evolution. For many nonfinancial corporates, risk management remains an underdeveloped and siloed capability in the organization, receiving limited attention from the most senior leaders. From over 1,100 respondents to McKinsey’s Global Board Survey for 2017 , we discovered that risk management remains a relatively low-priority topic at board meetings (exhibit).

A long way to go

Boards spend only 9 percent of their time on risk—slightly less than they did in 2015. Other questions in the survey revealed that only 6 percent of respondents believe that they are effective in managing risk (again, less than in 2015). Some individual risk areas are relatively neglected, and even cybersecurity, a core risk area with increasing importance, is addressed by only 36 percent of boards. While many senior executives stay focused on strategy and performance management, they often fail to challenge capabilities or strategic decisions from a risk perspective (see sidebar, “A long way to go”). A reactive approach to risks remains too common, with action taken only after things go wrong. The result is that boards and senior executives needlessly put their companies at risk, while personally taking on higher legal and reputational liabilities.

Boards have a critical role to play in developing risk-management capabilities at the companies they oversee. First, boards need to ensure that a robust risk-management operating model is in place. Such a model allows companies to understand and prioritize risks, set their risk appetite, and measure their performance against these risks. The model should enable the board and senior executives to work with businesses to eliminate exposures outside the company’s appetite statement, reducing the risk profile where warranted, through such means as quality controls and other operational processes. On strategic opportunities and risk trade-offs, boards should foster explicit discussions and decision making among top management and the businesses. This will enable the efficient deployment of scarce risk resources and the active, coordinated management of risks across the organization. Companies will then be prepared to address and manage emerging crises when risks do materialize.

A sectoral view of risks

Most companies operate in a complex, industry-specific risk environment. They must navigate macroeconomic and geopolitical uncertainties and face risks arising in the areas of strategy, finance, products, operations, and compliance and conduct. In some sectors, companies have developed advanced approaches to managing risks that are specific to their business models. These approaches can sustain significant value. At the same time companies are challenged by emerging types of risks for which they need to develop effective mitigation plans; in their absence, the losses from serious risk events can be crippling.

  • Automotive companies are controlling supply-chain risks with sophisticated monitoring models that allow OEMs to identify potential risks upfront across the supply chain. At the same time, auto companies must address the strategic challenge of shifting toward electric-powered and autonomous vehicles.
  • Pharma companies seek to manage the downside risk of large investments in their product portfolio and pipeline, while addressing product quality and patient safety to comply with relevant regulatory requirements.
  • Oil and gas, steel, and energy companies apply advanced approaches to manage the negative effects of financial markets and commodity-price volatility. As social and political demands for cleaner energy are increasing, these companies are actively pursuing growth opportunities to shift their portfolios in anticipation of an energy transition and a low-carbon future.
  • Consumer-goods companies protect their reputation and brand value through sound practices to manage product quality as well as labor conditions in their production facilities. Yet they are constantly challenged to meet consumers’ ever-changing tastes and needs, as well as consumer-protection regulations.

Toward proactive risk management

An approach based on adherence to minimum regulatory standards and avoidance of financial loss creates risk in itself. In a passive stance, companies cannot shape an optimal risk profile according to their business models nor adequately manage a fast-moving crisis. Eschewing a risk approach comprised of short-term performance initiatives focused on revenue and costs, top performers deem risk management as a strategic asset, which can sustain significant value over the long term. Inherent in the proactive approach are several essential components.

Strategic decision making

More rigorous, debiased strategic decision making can enhance the longer-term resilience of a company’s business model, particularly in volatile markets or externally challenged industries. Research shows that the active, regular reevaluation of resource allocation, based on sound assessments of risk and return trade-offs (such as entering markets where the business model is superior to the competition), creates more value and better shareholder returns. 1 See, for example, Yuval Atsmon, “ How nimble resource allocation can double your company’s value ,” August 2016; William N. Thorndike, Jr., The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success , Boston, MA: Harvard Business Review Press, 2012; Rebecca Darr and Tim Koller, “ How to build an alliance against corporate short-termism ,” January 2017. Flexibility is empowering in a dynamic marketplace. Many companies use hedging strategies to insure against market uncertainties. Airlines, for example, have been known to hedge future exposures to fuel-price fluctuations, a move that can help maintain profitability when prices climb. Likewise, strategic investing, based on a longer-term perspective and a deep understanding of a company’s core proposition, generates more value than opportunistic moves aiming at a short-term bump in the share price.

Debiasing and stress-testing

Approaches that include debiasing and stress-testing help senior executives consider previously overlooked sources of uncertainty to judge whether the company’s risk-bearing capacity can absorb their potential impact. A utility in Germany, for example, improved decision making by taking action to mitigate behavioral biases. As a result, it separated its renewables business from its conventional power-generation operations. In the aftermath of the Fukushima disaster, which sharply raised interest in environmentally friendly power generation, the utility’s move led to a significant positive effect on its share price (15 percent above the industry index).

Higher-quality products and safety standards

Investments in product quality and safety standards can bring significant returns. One form this takes in the energy sector is reduced damage and maintenance costs. At one international energy company, improved safety standards led to a 30 percent reduction in the frequency of hazardous incidents. Auto companies with reputations built on safety can command higher prices for their vehicles, while the better reputation created by higher quality standards in pharma creates obvious advantages. As well as the boost in demand that comes from a reputation for quality, companies can significantly reduce their remediation costs—McKinsey research suggests that pharma companies suffering from quality issues lose annual revenue equal to 4 to 5 percent of cost of goods sold.

Comprehensive operative controls

These can lead to more efficient and effective processes that are less prone to disruption when risks materialize. In the auto sector, companies can ensure stable production and sales by mitigating the risk of supply-chain disruption. Following the 2011 earthquake and tsunami, a leading automaker probed potential supply bottlenecks and took appropriate action. After an earthquake in 2016, the company quickly redirected production of affected parts to other locations, avoiding costly disruptions. In high-tech, companies applying superior supply-chain risk management can achieve lasting cost savings and higher margins. One global computer company addressed these risks with a dedicated program that saved $500 million during its first six years. The program used risk-informed contracts, enabling suppliers to lower the costs and risks of doing business with the company. The measures achieved supply assurance for key components, particularly during market shortages, improved cost predictability for components that have volatile costs, and optimized inventory levels internally and at suppliers.

Stronger ethical and societal standards

To achieve standing among customers, employees, business partners, and the public, companies can apply ethical controls on corporate practices end to end. If appropriately publicized and linked to corporate social responsibility, a program of better ethical standards can achieve significant returns in the form of heightened reputation and brand recognition. Customers, for example, are increasingly willing to pay a premium for products of companies that adhere to tighter standards. Employees too appreciate being associated with more ethical companies, offering a better working environment and contributing to society.

The three dimensions of effective risk management

Ideally, risk management and compliance are addressed as strategic priorities by corporate leadership and day-to-day management. More often the reality is that these areas are delegated to a few people at the corporate center working in isolation from the rest of the business. By contrast, revenue growth or cost savings are deeply embedded in corporate culture, linked explicitly to profit-and-loss (P&L) performance at the company level. Somewhere in the middle are specific control capabilities regarding, for example, product safety, secure IT development and deployment, or financial auditing.

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To change this picture, leadership must commit to building robust, effective risk management. The project is three-dimensional: 1) the risk operating model, consisting of the main risk management processes; 2) a governance and accountability structure around these processes, leading from the business up to the board level; and 3) best-practice crisis preparedness, including a well-articulated response playbook if the worst case materializes.

1. Developing an effective risk operating model

The operating model consists of two layers, an enterprise risk management (ERM) framework and individual frameworks for each type of risk. The ERM framework is used to identify risks across the organization, define the overall risk appetite, and implement the appropriate controls to ensure that the risk appetite is respected. Finally, the overarching framework puts in place a system of timely reporting and corresponding actions on risk to the board and senior management. The risk-specific frameworks address all risks that are being managed. These can be grouped in categories, such as financial, nonfinancial, and strategic. Financial risks, such as liquidity, market, and credit risks, are managed by adhering to appropriate limit structures; nonfinancial risks, by implementing adequate process controls; strategic risks, by challenging key decisions with formalized approaches such as debiasing, scenario analyses, and stress testing. While financial and strategic risks are typically managed according to the risk-return trade-off, for nonfinancial risks, the potential downside is often the key consideration.

Finding the right level of risk appetite

Companies need to find the right level of risk appetite, which helps ensure long-term resilience and performance. Risk appetite that is too relaxed or too restrictive can have severe consequences on company financials, as the following two examples indicate:

Too relaxed. One nuclear energy company set its standards for steel equipment in the 1980s and did not review them even when the regulations changed. When the new higher standards were applied to the manufacture of equipment for nuclear power plants, the company fell short of compliance. An earlier adaptation of its risk appetite and tolerance levels would have been significantly less costly.

Too restrictive. A pharma company set quality tolerances to produce a drug to a significantly stricter level than what was required by regulation. At the beginning of production, tolerance intervals could be fulfilled, but over time, quality could no longer be assured at the initial level. The company was unable to lower standards, as these had been communicated to the regulators. Ultimately, production processes had to be upgraded at a significant cost to maintain the original tolerances.

As well as assessing risk based on likelihood and impact, companies must also assess their ability to respond to emerging risks. Capabilities and capacities needed to manage these risks should be evaluated and gaps filled accordingly. Of particular importance in crisis management is the timeliness of an effective response when things go awry. The highly likely, high-impact risk events on which risk management focuses most of its attention often emerge with disarming velocity, taking many companies unawares. To be effective, the enterprise risk management framework must ensure that the two layers are seamlessly integrated. It does this by providing clarity on risk definitions and appetite as well as controls and reporting.

  • Taxonomy. A company-wide risk taxonomy should clearly and comprehensively define risks; the taxonomy should be strictly respected in the definition of risk appetite, in the development of risk policy and strategy, and in risk reporting. Taxonomies are usually industry-specific, covering strategic, regulatory, and product risks relevant to the industry. They are also determined by company characteristics, including the business model and geographical footprint (to incorporate specific country and legal risks). Proven risk-assessment tools need to be adopted and enhanced continuously with new techniques, so that newer risks (such as cyberrisk) are addressed as well as more familiar risks.
  • Risk appetite. A clear definition of risk appetite will translate risk-return trade-offs into explicit thresholds and limits for financial and strategic risks, such as economic capital, cash-flow at risk, or stressed metrics. In the case of nonfinancial risks like operational and compliance risks, the risk appetite will be based on overall loss limits, categorized into inherent and residual risks (see sidebar, “Finding the right level of risk appetite”).
  • Risk control processes. Effective risk control processes ensure that risk thresholds for the specified risk appetite are upheld at all levels of the organization. Leading companies are increasingly building their control processes around big data and advanced analytics. These powerful new capabilities can greatly increase the effectiveness and efficiency of risk monitoring processes. Machine-learning tools, for example, can be very effective in monitoring fraud and prioritizing investigations; automated natural language processing within complaints management can be used to monitor conduct risk.
  • Risk reporting. Decision making should be informed with risk reporting. Companies can regularly provide boards and senior executives with insights on risk, identifying the most relevant strategic risks. The objective is to ensure that an independent risk view, encompassing all levels of the organization, is embedded into the planning process. In this way, the risk profile can be upheld in the management of business initiatives and decisions affecting the quality of processes and products. Techniques like debiasing and the use of scenarios can help overcome biases toward fulfilment of short-term goals. A North American oil producer developed a strategic hypothesis given uncertainties in global and regional oil markets. The company used risk modelling to test assumptions about cash flow under different scenarios and embedded these analyses into the reports reviewed by senior management and the board. Weak points in the strategy were thereby identified and mitigating actions taken.

2. Toward robust risk governance, organization, and culture

The risk operating model must be managed through an effective governance structure and organization with clear accountabilities. The governance model maintains a risk culture that strongly reinforces better risk and compliance management across the three lines of defense—business and operations, the compliance and risk functions, and audit. The approach recognizes the inherent contradiction in the first line between performance (revenue and costs) and risk (losses). The role of the second line is to review and challenge the first line on the effectiveness of its risk processes and controls, while the third line, audit, ensures that the lines one and two are functioning as intended.

  • Three lines of defense. Effective implementation of the three lines involves the sharp definition of lines one and two at all levels, from the group level through the lines of business, to the regional and legal entity levels. Accountabilities regarding risk and control management must be clear. Risk governance may differ by risk type: financial risks are usually managed centrally, while operational risks are deeply embedded into company processes. The operational risk of any line of business is managed by the business owning the product-development, production, and sales processes. This usually translates into forms of quality control, but the business must also balance the broader impact of risk and P&L. In the development of new diesel engines, automakers lost sight of the balance between compliance risk and the additional cost to meet emission standards, with disastrous results. Risk or compliance functions can only complement these activities by independently reviewing the adequacy of operational risk management, such as through technical standards and controls.
  • Reviewing the risk appetite and risk profile. Of central importance within the governance structure are the committees that define the risk appetite, including the parameters for doing business. These committees also make specific decisions on top risks and review the control environment for enhancements as the company’s risk profile changes. Good governance in this case means that risk decisions are considered within the existing divisional, regional, and senior-management governance structure of a company, supported by risk, compliance, and audit committees.
  • Integrated risk and compliance governance setup. A robust and adequately staffed risk and compliance organization supports all risk processes. The integrated risk and compliance organization provides for single ownership of the group-wide ERM framework and standards, appropriate clustering of second-line functions, a clear matrix between divisions and control functions, and centralized or local control as needed. A clear trend is observable whereby the ERM layer responsible for group-wide standards, risk processes, and reporting becomes consolidated, whereas the expert teams setting and monitoring specific control standards for the business (including standards for commercial, technical compliance, IT or cyberrisks) become specialized teams covering both regulatory compliance as well as risk aspects.
  • Resources. Appropriate resources are a critical factor in successful risk governance. The size of the compliance, risk, audit, and legal functions of nonfinancial companies (0.5 for every 100 employees, on average), are usually much smaller than those of banks (6.9 for every 100 employees). The disparity is partly a natural outcome of financial regulation, but some part of it reflects a capability gap in nonfinancial corporates. These companies usually devote most of their risk and control resources in sector-specific areas, such as health and safety for airlines and nuclear power companies or quality assurance for pharmaceutical companies. The same companies can, however, neglect to provide sufficient resources to monitor highly significant risks, such as cyberrisk or large investments.
  • Risk culture. An enhanced risk culture covers mind-sets and behaviors across the organization. A shared understanding is fostered of key risks and risk management, with leaders acting as role models. Especially important are capability-building programs on risk as well as formal mechanisms to assess and reinforce sound risk management practices.
An enhanced risk culture covers mind-sets and behaviors across the organization. A shared understanding is fostered of key risks and risk management, with leaders acting as role models.

3. Crisis preparedness and response

A high-performing, effective risk operating model and governance structure, with a well-developed risk culture minimize the probability of corporate crises , without, of course, completely eliminating them. When unexpected crises strike at high velocity, multinational companies can lose billions in value in the first days and soon find themselves struggling to keep their market position. A best-in-class risk management environment provides the ideal conditions for preparation and response.

  • Ensure board leadership. The most important action companies can take to prepare for crises is to ensure that the effort is led by the board and senior management. Top leadership must define the main expected threats, the worst-case scenarios, and the actions and communications that will be accordingly rolled out. For each threat, hypothetical scenarios should be developed for how a crisis will unfold, based on previous crises within and beyond the company’s industry and region.
  • Strengthen resilience. By mapping patterns that arose in previous crises, companies can test their own resilience, challenging key areas across the organization for potential weaknesses. Targeted countermeasures can then be developed in advance to strengthen resilience. This crucial aspect of crisis preparedness can involve reviewing and revising the terms and conditions for key suppliers, shoring up financials to ensure short-term availability of cash, or investing in advanced cybersecurity measures to protect essential data and software in the event of failures and breaches.
  • Develop action plans and communications. Once these assessments are complete and resilience-building countermeasures are in place, the company can then develop action plans for each threat. The plans must be well articulated, founded on past crises, and address operational and technical planning, financial planning, third-party management, and legal planning. Care should be taken to develop an optimally responsive communications strategy as well. The correct strategy will enable frontline responders to keep pace with or stay ahead of unfolding crises. Communications failures can turn manageable crises into irredeemable catastrophes. Companies need to have appropriate scripts and process logic in place detailing the response to crisis situations, communicated to all levels of the organization and well anchored there. Airlines provide an example of the well-articulated response, in their preparedness for an accident or crash. Not only are detailed scripts in place, but regular simulations are held to train employees at all levels of the company.
  • Train managers at all levels. The company should train key managers at multiple levels on what to expect and enable them to feel the pressures and emotions in a simulated environment. Doing this repeatedly and in a richer way each time will significantly improve the company’s response capabilities in a real crisis situation, even though the crisis may not be precisely the one for which managers have been trained. They will also be valuable learning exercises in their own right.
  • Put in place a detailed crisis-response playbook. While each crisis can unfold in unique and unpredictable ways, companies can follow a few fundamental principles of crisis response in all situations. First, establish control immediately after the crisis hits, by closely determining the level of exposure to the threat and identifying a crisis-response leader, not necessarily the CEO, who will direct appropriate actions accordingly. Second, involved parties—such as customers, employees, shareholders, suppliers, government agencies, the media, and the wider public—must be effectively engaged with a dynamic communications strategy. Third, an operational and technical “war room” should be set up, to stabilize primary threats and determine which activities to sustain and which to suspend (identifying and reaching out to critical suppliers). Finally, a deliberate effort must be made to address and neutralize the root cause of the crisis and so bring it to an end as soon as possible.

In a digitized, networked world, with globalized supply chains and complex financial interdependencies, the risk environment has grown more perilous and costly. A holistic approach to risk management, based on the lessons, good and bad, of leading companies and financial institutions, can derive value from that environment. The path to risk resilience that is emerging is an effort, led by the board and senior management, to establish the right risk profile and appetite. Success depends on the support of a thriving risk culture and state-of-the-art crisis preparedness and response. Far from minimal regulatory adherence and loss avoidance, the optimal approach to risk management consists of fundamentally strategic capabilities, deeply embedded across the organization.

Daniela Gius is a senior expert in McKinsey’s Hamburg office, Jean-Christophe Mieszala is a senior partner in the Paris office, Ernestos Panayiotou is a partner in the Athens office, and Thomas Poppensieker is a senior partner in the Munich office.

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Risk Management Plan – Definition & How to Create a Risk Management Plan in 8 Steps

What is a risk management plan.

Risk management planning is identifying potential risks ahead of time, analyzing them, then taking the necessary steps to reduce or eliminate them.

What are the benefits of a risk management plan?

A Risk Management Plan (RMP) is a fundamental tool for any business, organization, or individual that wants to protect and preserve its resources.

A Risk Management Plan will help you anticipate potential risks, evaluate them, and create strategies to manage them. It is an essential part of any business plan, as it helps organizations identify areas of uncertainty and develop ways to reduce or prevent unfavorable outcomes. Risk management planning can also help organizations understand their exposures and develop strategies to ensure that they have the resources available when needed.

How to Create a Risk Management Plan

A risk management plan has four core components: identification, evaluation, treatment, and monitoring . But these components must be broken down further to create a risk management plan properly. 

Here are eight steps to help you create a Risk Management Plan: 

1. Set Objectives 

The first step in creating a risk management plan is to set objectives. This means identifying the goals and expectations of your organization and setting realistic targets for reducing or mitigating risk while also optimizing resources. 

2. Identify Risk Sources 

Once you've identified your objectives, it's crucial to identify all potential sources of risk that you may encounter. This can include anything from natural disasters to market volatility and operational risks. 

3. Analyze the Risk 

Once the risk sources have been identified, it's time to analyze each source of risk. This involves understanding the probability of occurrence and severity of impact for each risk source. 

4. Develop Risk Treatment Strategies  

After analyzing the sources of risk, it's time to develop strategies for how each source of risk should be treated. Risk treatment strategies include anything from avoidance to mitigation and risk transfer. 

5. Document Risk Management Plan  

Once you've identified objectives, identified sources of risk, analyzed each source of risk, and developed strategies for treating those risks, it's time to document your risk management plan. This should include all the steps outlined above and provide a detailed action plan for dealing with potential risks. 

6. Implement a Risk Management Plan  

Once your Risk Management Plan is documented, it's time to implement it. This involves putting into practice any strategies you developed for treating risks and ensuring that all your employees understand and follow the risk management plan. 

7. Monitor Risk  

Your Risk Management Plan is not something that should be set in stone. Monitoring risk continuously is essential to ensure it is practical and up to date. Business and organizational leaders should regularly review sources of risk, analyzing changes in the environment, and making any necessary updates to your Risk Management Plan. 

8. Evaluate Risk Management 

Finally, it's essential to evaluate your risk management plan regularly. This involves assessing the effectiveness of the risk management plan in reducing or eliminating risks while ensuring that resources are optimized.

Risk Management Best Practices to Keep in Mind

  • Create a work environment that emphasizes risk awareness
  • Create awareness among employees
  • Set guidelines for how to enforce risk management policies
  • Openly communicate risk policies on a regular basis
  • Evaluate and adapt

Frequently Asked Questions Related to Risk Management Plans

What are the four components of a risk management plan.

The four components of a risk management plan are risk identification, evaluation, treatment, and monitoring.

How often should Risk Management Plans be evaluated?

Risk management plans should be evaluated regularly to ensure they are up-to-date and effective. This can mean quarterly, semi-annually, or annually depending on your organization's needs.

What is a Risk Register?

A risk register is a document used to record identified risks and the strategies for managing them. It should include information such as the probability of occurrence, the severity of impact, and risk treatments.

What is the most important step in a risk management plan?

The most critical step in a risk management plan is to identify potential sources of risk. This involves understanding the probability of occurrence and impact severity for each risk source.

Who is responsible for risk management?

Risk Management is typically the responsibility of senior management. However, risk management can involve all levels of an organization, from top to bottom.

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Risk management illustration

Risk management is the process of identifying, assessing and controlling financial, legal, strategic and security risks to an organization’s capital and earnings. These threats , or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters.

If an unforeseen event catches your organization unaware, the impact could be minor, such as a small impact on your overhead costs. In a worst-case scenario, though, it could be catastrophic and have serious ramifications, such as a significant financial burden or even the closure of your business.

To reduce risk, an organization needs to apply resources to minimize, monitor and control the impact of negative events while maximizing positive events. A consistent, systemic and integrated approach to risk management can help determine how best to identify, manage and mitigate significant risks.

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At the broadest level, risk management is a system of people, processes and technology that enables an organization to establish objectives in line with values and risks.

A successful risk assessment program must meet legal, contractual, internal, social and ethical goals, as well as monitor new technology-related regulations. By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business protects itself from uncertainty, reduce costs and increase the likelihood of business continuity and success.

Three important steps of the risk management process are risk identification, risk analysis and assessment, and risk mitigation and monitoring.

Risk identification is the process of identifying and assessing threats to an organization, its operations and its workforce. For example, risk identification can include assessing IT security threats such as malware and ransomware, accidents, natural disasters and other potentially harmful events that could disrupt business operations.

Risk analysis involves establishing the probability that a risk event might occur and the potential outcome of each event. Risk evaluation compares the magnitude of each risk and ranks them according to prominence and consequence.

Risk mitigation refers to the process of planning and developing methods and options to reduce threats to project objectives. A project team might implement risk mitigation strategies to identify, monitor and evaluate risks and consequences inherent to completing a specific project, such as new product creation. Risk mitigation also includes the actions put into place to deal with issues and effects of those issues regarding a project.

Risk management is a nonstop process that adapts and changes over time. Repeating and continually monitoring the processes can help assure maximum coverage of known and unknown risks.

There are five commonly accepted strategies for addressing risk. The process begins with an initial consideration of risk avoidance then proceeds to 3 additional avenues of addressing risk (transfer, spreading and reduction). Ideally, these three avenues are employed in concert with one another as part of a comprehensive strategy. Some residual risk may remain.

Avoidance is a method for mitigating risk by not participating in activities that may negatively affect the organization. Not making an investment or starting a product line are examples of such activities as they avoid the risk of loss.

This method of risk management attempts to minimize the loss, rather than completely eliminate it. While accepting the risk, it stays focused on keeping the loss contained and preventing it from spreading. An example of this in health insurance is preventive care.

When risks are shared, the possibility of loss is transferred from the individual to the group. A corporation is a good example of risk sharing—several investors pool their capital and each only bears a portion of the risk that the enterprise may fail.

Contractually transferring a risk to a third-party, such as, insurance to cover possible property damage or injury shifts the risks associated with the property from the owner to the insurance company.

After all risk sharing, risk transfer and risk reduction measures have been implemented, some risk will remain since it is virtually impossible to eliminate all risk (except through risk avoidance). This is called residual risk.

Risk management standards set out a specific set of strategic processes that start with the objectives of an organization and intend to identify risks and promote the mitigation of risks through best practice.

Standards are often designed by agencies who are working together to promote common goals, to help to ensure high-quality risk management processes. For example, the ISO 31 000 standard on risk management is an international standard that provides principles and guidelines for effective risk management.

While adopting a risk management standard has its advantages, it is not without challenges. The new standard might not easily fit into what you are doing already, so you could have to introduce new ways of working. And the standards might need customizing to your industry or business. 

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Building and Implementing a Risk Management Plan

“If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business.” – Gary Cohn

Risk management has become increasingly important for businesses in the 2020s. You might have the best strategy and execution plan to scale your business, but without the right cautionary measures, all your hard work could succumb to any unforeseen obstacle.

Businesses of all sizes and industries must be proactive about identifying and addressing potential risks to help ensure long-term sustainability. Ideally, they should develop a risk management plan as early as possible.

Contrary to popular belief, you don’t need a large budget to implement risk management. Even small businesses can do it successfully with the right mindset and resources.

Before building a plan, businesses must first understand the fundamentals of risk management and why it’s critical.

What is Risk Management?

Risk management refers to the process of identifying, assessing, and mitigating potential risks that can impact an organization’s objectives and operations. It involves systematically analyzing internal and external factors that could pose a threat to the achievement of business goals.

By implementing robust risk management practices, businesses can minimize the negative impact of risks and enhance their ability to adapt and thrive in a dynamic marketplace.

Different Types of Risk in Business

There are several types of risk that can affect businesses. Here are five of the most common types:

Strategic Risk: Risks associated with strategic decisions, such as market shifts, competition, and technological advancements that may impact business strategy and goals.

Compliance Risk: Risks arising from failure to comply with applicable laws, regulations, and industry standards, which can lead to legal penalties, reputational damage, and loss of trust.

Operational Risk: Risks related to internal processes, systems, and human factors that can disrupt business operations, lead to financial losses, and impact customer satisfaction.

Reputational Risk: Risks associated with damage to a company’s reputation due to negative public perception, customer dissatisfaction, or ethical misconduct.

Financial Risk: Risks pertaining to financial management, including fluctuations in markets, credit, liquidity, and investment performance, which can impact profitability and stability.

Risk Management is More Important Than Ever

We’ve seen a massive increase in corporate focus on risk management in recent years. The pandemic served as a wakeup call for many who were left scrambling to figure out how to survive.

Now businesses are aware that disaster can strike at anytime, and a strategic plan alone is not enough. Strategic planning sessions focus on the direction and growth of the business. Risk management focuses on altering that plan in the case of unforeseen negative circumstances. Both are essential to running a sustainable business.

When done effectively, risk management covers areas that regular planning cannot. It minimizes financial losses, enhances decision-making , ensures business continuity in case of disruption, protects reputational value, and encourages stakeholder confidence.

Selecting a Risk Management Framework

Risk management frameworks provide a structured approach to managing risks. There are several widely recognized frameworks, each offering unique methodologies and guidelines.

Here are the four most popular risk management frameworks:

  • COSO ERM: The Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management framework is widely adopted across industries. It emphasizes the integration of risk management into an organization’s overall strategy and operations. COSO ERM provides a comprehensive approach to identify, assess, and respond to risks, focusing on internal control systems, risk appetite , and the alignment of risk management with business objectives. By utilizing COSO ERM, businesses can enhance risk quickly and make informed decisions to achieve sustainable success.
  • ISO 31000: The International Organization for Standardization (ISO) 31000 standard is a globally recognized framework. It emphasizes the systematic identification, assessment, treatment, and monitoring of risks. ISO 31000 promotes a proactive and iterative approach to risk management, enabling businesses to effectively manage uncertainties, seize opportunities, and improve performance.
  • NIST Cybersecurity Framework: Developed by the National Institute of Standards and Technology (NIST), the NIST Cybersecurity Framework focuses specifically on managing cybersecurity risks and protecting critical infrastructure. It provides a flexible and customizable framework that enables organizations to assess and improve their cybersecurity posture. The framework consists of five core functions: Identify, Protect, Detect, Respond, and Recover.
  • ISO 27001: SO 27001 is an internationally recognized standard for information security management systems. It provides a systematic approach to identify, assess, and treat information security risks. It enables organizations to ensure the confidentiality, integrity, and availability of their information assets while addressing associated risks comprehensively.

Building and refining your risk management strategy based on a suitable framework depends on the specific needs, industry, and risk landscape of your business. Consider adopting one or a combination of these frameworks to strengthen your risk management capabilities and mitigate potential threats effectively.

How to Build & Implement a Risk Management Plan

Using a risk management framework will help build the foundation for a risk management plan. However, customizing the plan to fit your specific business needs will require more work.

Use these steps to create, implement, and measure the effectiveness of your unique risk management plan:

  • Identify Risks: Conduct a thorough assessment of potential risks, considering internal and external factors specific to your business. Create a risk register to document these.
  • Assess Risks: Evaluate the potential impact and likelihood of occurrence for each identified risk. This step involves analyzing the severity of each risk and its potential consequences on your business objectives. Prioritize risks based on their significance and the resources required for mitigation.
  • Develop Mitigation Strategies: Implement risk mitigation strategies, such as risk avoidance, reduction, transfer, or acceptance. Establish internal controls, contingency plans, and employee training programs.
  • Monitor and Review: Continuously monitor identified risks and make adjustments to your mitigation strategies as necessary. Regularly update your risk register and utilize open communication channels for risk reporting. Data tracking software tools such as Align can help ensure upkeep of your plan, measure mitigation tactics with specific key performance indicators (KPIs), and maintain effective communication.
  • Learn from Mistakes: Analyze past incidents or near-misses, identify root causes, and implement corrective actions to prevent similar risks from occurring in the future. Encourage a culture of learning and continuous improvement.

Building and implementing an effective risk management plan is crucial for the long-term success of businesses of any size. A comprehensive plan helps identify potential risks, assess their impact, and develop strategies to mitigate them in a time-sensitive manner.

Though risk management may seem like a daunting task for small businesses, the right framework and tools can make it easier. By taking the time to create an effective strategy tailored to your needs, you can ensure business continuity and success even when faced with unexpected threats.

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How to Build a Comprehensive Risk Management Plan

Aaron Lancaster

Aaron Lancaster

January 29, 2024

How to Build a Comprehensive Risk Management Plan

Risk management is an essential component of any successful project management plan. A risk management plan outlines strategies to identify, assess, and mitigate potential risks associated with a project. A well-thought-out risk management plan can help to ensure the success of a project by minimizing unexpected risks and ensuring that resources are used effectively. In this blog post, we’ll discuss how to create an effective risk management plan to maximize success and minimize risk.

Understanding the Importance of Risk Management

Risk management is not just a fancy buzzword thrown around in the world of audit, risk, and compliance. It is a crucial element that can make or break the success of an organization. So, let’s dive into the importance of risk management and why it should never be overlooked.

risk management for business plan

First and foremost, risk management allows organizations to take a proactive approach rather than a reactive one. By identifying potential risks early on, project managers can devise strategies to mitigate or eliminate them. This not only saves time and resources but also helps to maintain project timelines and budgets.

One of the key reasons why risk management is vital is that it helps risk owners effectively communicate with stakeholders. When known risks are assessed, risk management leadership can provide stakeholders with realistic expectations regarding potential issues that may arise during the project’s lifecycle. This transparency fosters trust and credibility, as key stakeholders are informed about the project’s potential risks and how they will be handled.

A risk management plan also aids in decision-making processes. When organizations have a comprehensive understanding of potential risks, they can make informed decisions to address and minimize these risks. For example, if a risk assessment reveals a high potential impact on a specific business process, risk owners can allocate additional resources or adjust project timelines accordingly. This ensures that business process objectives are achieved, even in the face of adversity.

Furthermore, risk management promotes a proactive and collaborative approach with corporate executives and management teams. By involving team members in risk identification and analysis processes, organizations tap into the collective expertise and experience of their teams. This collaborative effort not only results in better risk identification but also fosters a sense of ownership and accountability among team members.

A risk management plan acts as a blueprint for the project team to follow. It provides a structured framework for risk identification, assessment, and response. Without a risk management plan, the organization would be left vulnerable to unexpected risks, leading to project delays, cost overruns, and overall project failure.

Finally, risk management is an iterative process. Throughout the risk management lifecycle, new types of risks may emerge, or the severity of existing risks may change. A robust risk management plan allows project managers to monitor and track risks continually, updating their risk register and response plans as needed. This adaptability ensures that the project remains on track, even when faced with unforeseen challenges.

Identifying Potential Risks

Now that we understand the importance of risk management, let’s dive into the first step of creating an effective risk management plan: identifying potential risks. This step is crucial because it sets the foundation for the entire risk management process.

To identify potential risks, risk owners can employ various techniques and tools. One popular method is brainstorming sessions. Gather your risk management team members, stakeholders, and subject matter experts in a room and encourage them to share any risks they can think of. By tapping into the collective knowledge and expertise of your team, you can identify risks that might have otherwise been overlooked.

Another helpful tool for identifying potential risks is using a risk management plan template . A risk management plan template provides a structured framework for capturing and categorizing potential risks. It prompts the risk management team to consider different aspects of the business process, such as technology, resources, and external factors, which can help uncover potential risks.

During the risk identification process, it’s important to think broadly and consider both internal and external factors that could negatively impact the organization’s security posture. Internal risks may include issues with team dynamics, resource availability, or technical limitations. External risks, on the other hand, may arise from factors beyond your control, such as regulatory changes, market fluctuations, or natural disasters.

Once potential risks have been identified, it’s important to document them in a risk register or a risk analysis tool. This record should include details about each risk, such as its description, likelihood of occurrence, potential impact, and risk owner. Assigning a risk owner is essential, as it ensures that someone takes responsibility for monitoring and managing each identified risk.

As risks are identified, they should also evaluate the severity of each risk. By evaluating risk severity, organizations can prioritize risks and allocate resources accordingly. The severity of risk can be determined by assessing the likelihood of occurrence and the potential impact it could have on the enterprise component. This evaluation allows the focus to be placed on high-severity risks first, ensuring that resources are used effectively.

It’s worth mentioning that the process of identifying potential risks should not be a one-time event. Throughout the project lifecycle, new risks may emerge, or the severity of existing risks may change. Therefore, risk identification should be an ongoing process, with regular risk monitoring and review.

Evaluating Risk Severity

Now that we have identified potential risks, it is crucial to evaluate their severity. Evaluating risk severity allows project managers to prioritize risks and allocate resources effectively. By understanding the potential impact and likelihood of each risk, risk management leadership can make informed decisions about which risks to address first.

To evaluate risk severity, risk owners should consider both the potential impact and the likelihood of occurrence. The potential impact refers to the magnitude of the consequences if a risk were to materialize. For example, financial risk management may reveal a risk that could result in a big financial loss or project failure, which has a greater potential impact than a risk with minor consequences. 

Likelihood of occurrence, on the other hand, refers to the probability that a risk will happen. This can be based on historical data, expert judgment, or statistical analysis. Risks that are more likely to occur pose a higher threat to the project and should be given greater attention.

risk management for business plan

To evaluate risk severity, organizations can use a risk assessment matrix. This matrix typically consists of a grid with severity levels ranging from low to high, and likelihood levels ranging from unlikely to almost certain. Each risk is then assessed and assigned a severity level based on its potential impact and likelihood of occurrence.

Once risks have been assigned severity levels, they can be prioritized, and then a risk response plan can be developed. The risk response plan outlines response strategies for mitigating, transferring, accepting, or avoiding each identified risk. By addressing high-severity risks first, risk owners can minimize their impact and decrease the chances of negative impact on the organization.

In addition to the risk response plan, organizations should also consider developing a contingency plan for high-severity risks. A contingency plan is a backup plan that outlines actions to be taken if a risk materializes. This plan helps companies to be prepared and minimizes the potential disruption caused by unexpected risk events.

It is important to note that risk severity evaluations should be revisited regularly throughout the project lifecycle. As new risks emerge or existing risks change, the severity levels may need to be adjusted. Regular review and evaluation of risk severity ensure that the risk management plan remains effective and up to date.

Developing a Risk Mitigation Plan

Developing a Risk Mitigation Plan is a crucial step in the risk management process. Once potential risks have been identified and their severity evaluated, it’s time to develop a plan to mitigate these risks and minimize their impact on the project. The goal of a risk mitigation plan is to put measures in place to reduce the likelihood of risks occurring and to decrease their potential impact.

To develop a risk mitigation plan, project managers should start by prioritizing the high-severity risks identified during the risk evaluation process. These are the risks that have the highest potential impact and are most likely to occur. By focusing on these risks first, resources can be effectively allocated and address the most critical threats to the company’s success.

Once high-severity risks have been identified, risk management team members can start brainstorming strategies to mitigate them. Several approaches can be taken, depending on the nature of the risk and the specific circumstances. Some common risk mitigation strategies include:

1. Risk Avoidance: In some cases, the best way to mitigate a risk is to avoid it altogether. This may involve making changes to the project plan, such as choosing a different technology or methodology that reduces the risk’s likelihood.

2. Risk Transfer: Sometimes, it’s possible to transfer the risk to another party. This could involve outsourcing certain aspects of the project to a third-party vendor or purchasing insurance to cover potential losses.

3. Risk Reduction: This strategy involves taking steps to reduce the likelihood or impact of a risk. For example, implementing strict quality control measures can reduce the risk of product defects, or conducting regular backup procedures can reduce the risk of data loss.

4. Risk Acceptance: In some cases, the potential impact of a risk may be low enough that it is acceptable to simply monitor the risk and take no further action. This strategy is often used for low-severity risks or risks that are outside of the organization’s control.

Once risk mitigation strategies have been identified, it’s important to document them in the risk response plan. The risk response plan outlines the specific actions that will be taken to mitigate each identified risk. It should include details such as who is responsible for implementing the strategy, the timeline for completion, and any associated costs.

Implementing and monitoring the project risk management plan are the next steps in the risk management process. Once the risk analysis and management plan has been developed, it’s important to put it into action and monitor its effectiveness. This involves tracking the progress of risk mitigation strategies, assessing their impact on the project, and making adjustments as needed.

Implementing and Monitoring the Plan

Once you have developed your risk mitigation plan, it’s time to put it into action and start implementing and monitoring your strategies. This is a crucial step in the risk management process as it allows you to track the progress of your risk mitigation efforts and make adjustments as needed.

To begin, ensure that your risk response plan is communicated clearly to all relevant team members. Each person responsible for implementing a specific risk mitigation strategy should understand their role and the timeline for completion. This promotes accountability and ensures that everyone is on the same page when it comes to managing project risks.

As you implement your risk mitigation strategies, it’s important to monitor their effectiveness. Regularly assess how well your strategies are working and whether they are effectively reducing the likelihood or impact of identified risks. This can be done through regular project meetings, check-ins, and progress reports. Additionally, establish key performance indicators (KPIs) or metrics to track the success of your risk mitigation efforts.

If you find that certain strategies are not achieving the desired results, be prepared to make adjustments. This might involve revisiting your risk response plan and identifying alternative strategies to address the risk. Flexibility and adaptability are key when it comes to managing project risks, so don’t be afraid to make changes if needed.

In addition to monitoring the effectiveness of your risk mitigation strategies, it’s important to regularly review and update your risk register. As new risks emerge or existing risks change, make sure to document them in your risk register and assess their potential impact. This ensures that your risk management plan remains current and reflects the evolving nature of your project.

Remember, risk management is an ongoing process, and monitoring your risk mitigation strategies is crucial to the success of your project. By regularly assessing the effectiveness of your strategies and making necessary adjustments, you can stay one step ahead of potential risks and increase the likelihood of project success.

Adapting and Improving Your Risk Management Strategy

Creating an effective risk management plan is a dynamic process that requires continuous adaptation and improvement. As your project progresses and new information becomes available, it’s essential to reassess your risk management strategies and make necessary adjustments. In this section, we’ll explore the importance of adapting and improving your risk management strategy and provide some tips for doing so effectively.

One of the first steps in adapting your risk management strategy is to regularly review and update your risk response plan. As you implement your risk mitigation strategies and monitor their effectiveness, you may discover that certain strategies are not achieving the desired results or that new risks have emerged. By revisiting your risk response plan and identifying alternative strategies, you can address these challenges head-on and increase the likelihood of project success.

In addition to updating your risk response plan, it’s crucial to regularly communicate with your project team and stakeholders about any changes or adjustments to the risk management strategy. This open and transparent communication ensures that everyone is on the same page and can adjust their plans and expectations accordingly. It also fosters a collaborative environment where team members feel empowered to provide feedback and suggest improvements.

Another important aspect of adapting your risk management strategy is to learn from past experiences. As your project progresses, take the time to reflect on any risks that have occurred and evaluate how well your risk mitigation strategies addressed them. Did the strategies effectively reduce the impact of the risks? Were there any unforeseen challenges or opportunities that arose? By reflecting on these experiences, you can identify areas for improvement and adjust your risk management strategy accordingly.

Continuous improvement is key to effective risk management. This means regularly seeking feedback from your project team and stakeholders, as well as staying updated on industry best practices and emerging risk management trends . Attend relevant conferences or webinars, read industry publications, and engage in discussions with other project managers to stay informed and gain new insights.

Risk management is an ongoing process that requires vigilance and adaptability. By regularly reviewing and updating your risk management strategy, communicating with your team and stakeholders, learning from past experiences, and staying informed, you can ensure that your project is well-positioned to minimize risks and maximize success.

In conclusion, an effective risk management strategy is crucial for project success. By understanding the importance of risk management, identifying potential risks, evaluating their severity, developing a risk mitigation plan, implementing and monitoring the plan, and adapting and improving your risk management strategy, you can minimize risks and increase the likelihood of project success.

Aaron

Aaron Lancaster is a Manager of Partner Solutions at AuditBoard, where he serves as a product and industry expert to support AuditBoard’s alliance members. Aaron has more than 15 years of experience in internal audit, risk management, organizational controls, compliance, and business process improvement with primary focus on financial services. Connect with Aaron on LinkedIn .

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Risk Management Plan Examples Created by Experts

June 14, 2019

by Grace Pinegar

risk management for business plan

Risk management is the process of determining what all could go wrong throughout a project life cycle.

By preparing ourselves for possible hiccups, we can strategize viable solutions and stop small problems from becoming dire.

We’ve already talked about a risk management plan, and what goes into making one. But if you’re an experiential learner like I am, you’ll find it helpful to hear from some experts in the field who have had to mitigate their own risks.

In this article, we’ll cover specific risk management plan examples provided by professionals in a variety of industries.

Risk management plan example

It’s not easy to predict what could happen. We’re more inclined to take things one day at a time and course-correct after things have gone completely awry.

As a project manager, team lead, or executive stakeholder, you’ll see greater success if you work to mitigate and reduce risks before they affect your company’s bottom line.

The following anecdotes should give you an idea of what it looks like to take risk seriously.

Austin Landes

Risk advisor from LandesBlosch

I’m a risk advisor for LandesBlosch where I help companies of all sizes create risk management plans and control their losses through the four risk management measures: avoid, control, accept, and Transfer.

risk management plan example

One of the most significant risks companies face today is the threat of a cyber attack or data breach. When we create a risk management plan for a client, the first thing we do is analyze that client's digital infrastructure and then explore ways we can avoid, control, or transfer the risk.

For example, to avoid potential damage from a data breach, a company could choose to avoid storing sensitive data on their computer systems. To control or mitigate a cyber attack, a company could increase its technical controls and network oversight. To transfer the risk, a company could purchase an insurance policy.

After determining where vulnerabilities exist and developing a risk management plan, companies can implement strategies to minimize risk.

Alex Birkett

Senior Growth Marketing Manager at HubSpot

Running online controlled experiments is the ultimate risk mitigation strategy. It's difficult to A/B test large strategic decisions, but I've learned that in the vast majority of cases, it's possible to run a rigorous business experiment to mitigate any potential downside to what you're thinking about rolling out.

This is obviously true in the case of product features, marketing campaigns, and website elements, but it can be true in the broader sense of how you go to market, what your sales cadence looks like, and even how you goal and incentivize employees.

I'd lean in on experiments in most cases, particularly when there is uncertainty (hint: there's always uncertainty) and when it is indeed possible to collect sufficient data and certainty through running an experiment to make a more informed decision.

Follow Alex at @iamalexbirkett on Twitter

Bryce Welker

CEO of Crush Empire LLC

In my company, the core of our risk management strategy is to have the fewest possible links in the chain. That means that access to sensitive information and core tools for our business should be limited to the fewest possible team members.

Here's an example: the majority of my business is done through websites built through Wordpress. In order to minimize our risk of being hacked and having our sites hijacked or injected with malware, I limit the amount of users with access to these sites to myself, one editor, one designer, and one coder.

This ensures that there are the fewest possible users that can be phished or brute force accessed, limiting our vulnerability. Essentially, my risk management strategy involves keeping as many aspects of my business as possible on a need-to-know basis.

Follow Bryce at @crushthecpaexam

HostingTribunal.com

I’ve been managing lots of projects in the IT industry. Risks are inevitable in our sector.

The IT industry is quite specific as there is a lot of things that can go wrong. Trends change on a daily basis which can affect our timelines, finances and resources. In my work, I focus on two risk management strategies: risk avoidance and risk reduction

These aren’t always achievable, but I utilize them as much as possible. Here’s what the process looks like:

Risk predictions

I always assign at least one person to continuously follow the changes in the industry, team progress, resources that we have - anything that can affect our work significantly. In this step, it’s important not just to acknowledge things, but also to think a few steps ahead. The ability to predict risks even before they occur is essential.

Risk analysis

In case something unpredictable happens, I always spend some time analyzing potential effects on the company before I move to concrete steps. In what ways does a new situation affect us? What can we do to reduce the consequences? How can we solve the issue effectively?

Taking damage control steps

As I mentioned, avoiding unplanned situations isn’t always possible. However, a good risk prediction and reduction strategy can significantly lower the consequences. In this phase, it’s important to take concrete steps as quickly as possible. Sometimes stalling things can cause a lot of damage to the process.

Andrea Wills

Anderson Technologies

Anderson Technologies is a managed services provider in St. Louis, Missouri. We encounter risk management both in our own company and in those of our clients whose work puts them in regular contact with ePHI.

Risk Management Plan example

For this reason, we have to take great care when maintaining HIPAA compliance and developing risk management plans for internal use as well as for our clients.

One of the crucial parts of risk management is determining the priority of the risk. This is a team effort! One person defines all the risks that may affect our company, another analyzes what it would take to mitigate each risk. We then determine if the cost and risk level makes an individual risk worth mitigating, transferring, or accepting, or whether it would be better to eliminate the problem risk all together.

Eventually everyone has to come together and prioritize all the risks by likelihood and level of impact, and decide that this risk is worth the investment to mitigate and that one, with low likelihood and low impact if triggered, is a reasonably acceptable risk because resources are better spent on higher risk problems.

Victor Chupyra

Project manager at Redwerk

Risk management is one of the deepest areas in project management, and the longer the project, the more complicated it gets. Normally you work with a risk register, a document any solid project must have.

The document is a list of risks usually ranked by severity/probability. A good project manager normally has 5-10 risks covered in the risk register, along with responses (actions that should be taken in case the risk happens).

Basically, a risk register consists of:

  • Known knowns-things we know that we know
  • Known unknowns-things that we know, but forgot
  • Unknown unknowns- things that exist but we don’t know about them
  • Positive risks- also known as opportunities

Jon M Quigley

Product Development Expert at Value Transformation LLC

Risk means uncertainty. To understand what sort of risks the project may be subjected to, depends on what the project is about. Projects that deliver products have associated risks also.

For example, consider three different products: an anti-locking braking system (ABS), a disk delivered gaming software, and an online game that does not require personal information. These three products have different risks associated.

Failures of an ABS system can cause bodily harm. Even if the ABS doesn’t have a hard failure that results in bodily harm, returns of products and replacement of the product in the field is quite costly, or it can be. Therefore the risks associated with this are likely high.

The delivered game, has material associated with the product delivery, but if the product fails, nobody gets hurt. The last instance of the online software product that has no access to your personal information is the least risky. There are no material consequences, and the software is on a server that can be easily updated.

Tolerance to risk and therefore risk response is situation dependent. Risk has two components:

  • Probability- the chances of the thing we identify as a risk coming to pass
  • Severity- how bad the consequences will be should the event come to pass

Praveen Malik

Independent Project Management Consultant and blogger at PM by PM

A Project Risk Management Plan is a plan of plans. It documents a plan for all the risk management activities in a project.

It includes many things, not limited to:

  • A list of risk management activities.
  • Responsible persons for identifying, prioritizing, mitigating, and controlling risks
  • Time and budget allocated for risk management activities
  • Frequency of risk monitoring and reporting
  • Communication and authorization structure
  • Risk prioritization guidelines7. Risk response guidelines

There is a misconception that a Risk Management Plan is a plan for mitigating individual project risks. It is not a plan to mitigate or respond to individual risks. It has a much wider scope, as described.

Here is a small list of the specific risks that I have seen in various projects.

  • Poor understanding of customer requirements
  • Optimistic duration estimations
  • Inadequate training and/or skills of project management software
  • Shortage of knowledgeable, skilled staff
  • Inadequate stakeholder engagement

Connect with Praveen on LinkedIn

Proactive over reactive

The purpose of a risk management plan is to develop solutions for problems before they’re in front of you. Being proactive and doing things well the first time around will save your company loads, as correcting mistakes is costly in more ways than one.

Discover whether a project is a good idea for your company right now by learning how to conduct a feasibility study .

Grace Pinegar photo

Grace Pinegar is a lifelong storyteller with an extensive background in various forms such as acting, journalism, improv, research, and content marketing. She was raised in Texas, educated in Missouri, worked in Chicago, and is now a proud New Yorker. (she/her/hers)

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What Is A Risk Management Plan?

Last Updated: September 19, 2023

Risk management is all about planning: planning for what might go wrong if x happens; planning y as a reaction for when something does, in fact, go wrong. Depending on what you’re working on at your business, you are up against a unique variety of potential risks.

In order for your business to succeed, it’s important to continuously evolve – and there are always ways to improve and expand your business. We’ve come to know these temporary initiatives with distinct deliverables as “projects.”

Some common examples of projects an organization may take on include:

  • Building or closing a facility
  • Re-branding
  • Developing or discontinuing a product or service
  • Migrating to a new software
  • Expanding or reducing service to a particular industry
  • Training a new group of employees

Taking a risk-based approach to new projects means thinking about the implications of any new project on all other areas of your organization. The best place to start is by creating a risk management plan to steer your team and organization in the right direction throughout the course of the project.

This guide will explain “what is a risk management plan?” Describe the purpose of a risk management plan, share what should be included in a risk management plan and provide examples of everything along the way.

Table of Contents

What is a risk management plan?

A risk management plan is a term used to describe a key project management process. A risk management plan enables project managers to see ahead to potential risks and reduce their negative impact. A new project welcomes in new opportunities but also potential risks so a risk management plan is a must for risk project managers.

In order to effectively manage the project and lead their project team to a successful outcome, they may develop and defer to a project risk management plan throughout the duration of the project.

what is a risk management plan main image

What is the purpose of a risk management plan?

The purpose of a risk management plan is to help you identify, evaluate and plan for possible risks that may arise within the project management process. Think of it as a blueprint walking you through every stage of construction, including potential areas where demolition may be needed, external contractors may be hired, or budget may be stretched.

What is included in a risk management plan?

Risk Identification

Identifying the risks that may be associated with taking on a new project or continuing an existing one should be the first step to developing your risk management plan. Failure to conduct risk identification and identify risks ahead of time can lead to a number of negative financial outcomes that don’t reduce the impact of the risk, especially those that are high risk:

  • Inadequate employee training can lead to incompetence’s, which can lead to disgruntled customers and ultimately loss of business.
  • Building a new facility in a flood-prone area without purchasing flood insurance can lead to substantial sunken costs.
  • Investing R&D into a new product that fails to excite the market takes a toll on your business valuation, which can turn investors away.

The list goes on. Ultimately, formalizing the process of identifying new risks lets you take a step back and notice systemic risks that may not have otherwise been uncovered had the proper time not been invested in this key part of risk analysis.

Project risk assessment

Next, for a project manager, it’s important to think about the implications of any new or existing project on all other areas of your organization. Conducting a project management risk assessment on that project will help reveal those implications ahead of time so you can effectively prevent undue risk. It’s important to be sure to assess risk in a uniform fashion. One of the best ways for a risk owner to do this is by prioritizing data and risk metric collection.

Risk assessment matrix

A risk assessment matrix is the best way for a risk project manager to collect and aggregate data used during your risk assessment. It’s created to help you identify the overlapping activities that crowd your risk management plan. The risk assessment matrix is essential in determining and defining the level and the implications of any particular risk.

Start by addressing a particular business area. Then, include a description of a risk that may be associated with that business area. Continue on by completing a risk analysis: identify the source of the risk, what could go wrong, and the impact of the risk. Then, you’ll need to decide the likelihood and assurance of the risk occurring.

Many organizations use a high-medium-low scale when assessing risk, but this actually isn’t best practice. High-medium and low scales make it difficult and time-consuming to quantify, aggregate, and objectively rank information. With only three options to choose from, they’ll likely feel conflicted about which one to choose. In reality, best practice favors a 1-10 scale, with 10 having the most unfavorable consequences to the organization.

This is something that helps to prioritize risks. You find out more about the risk prioritization process here.

Let’s take a look at the line items to assess a risk associated with re-opening an office amidst the pandemic:

  • Risk: Inadequate policies to prevent the spread of the virus to employees and/or visitors.
  • Risk analysis: what can go wrong?
  • Employees become uncomfortable wearing their mask for too long and decide to remove it while conversing with colleagues. Virus is then spread throughout the workforce.
  • Customer refuses to wear a mask out of principle and must be asked to leave the premises, causing a scene.
  • Employees and/or customers do not stay 6 feet apart from one another.

risk management for business plan

Risk Appetite Response Plan

After you’ve identified and assessed your risks the next step of any risk analysis project focuses on determining how you will respond to those risks. Risk response involves developing strategic options that can increase positive outcomes and reduce risk.

Your risk response plan should determine which actions you take in order to experience the most positive outcome and also consider your own risk appetite and tolerance levels . Critical elements that will help define your risk response are risk mitigation and risk monitoring.

Risk Mitigation

The efforts you take (or plan on taking) to control the risk being assessed should be included within your risk assessment matrix. This part of the project management risk process is referred to as mitigation . Risk mitigation is defined as the process of reducing a risk event and minimizing the likelihood of a potential risk.

Considering the above scenario, here are a few mitigations that might be developed and included within your matrix and overall plan:

  • Enforcing strict consequences for employees who are caught not wearing their mask. Dedicating particular areas outside where employees can go to take a break from wearing their mask at lunch.
  • Hanging signs on the front door that refuse people entry without a mask. Stationing employees at the front door who do not let anyone in without a mask.
  • Placing dots six feet apart from one another to instruct people on where to stand in line and prevent crowding.

As you can see these help to create a contingency plan against negative impact.

What is a Risk Register?

A Risk Register is a document that contains all of the information we’ve mentioned thus far: the risks you’ve identified and assessed, as well as the results and risk response plan. Many people choose to create a Risk Register to steer them throughout every project, particularly throughout the monitoring phase.

Risk Monitoring

Monitoring risk over the course of the project should be an ongoing and proactive part of risk analysis. It involves project management to conduct consistent testing by the risk owner throughout the project, metric collection, and incidents remediation to certify that your efforts are on track to be completed, aligned with your strategic goals, and allowing your mitigating controls to remain effective. Continually monitoring your risks also allows you to identify and address emerging trends to determine whether or not you’re making progress on more long-term initiatives.

Risk monitoring helps you create key connections between risks, business units, mitigation activities, and more. This way, you’re able to paint a more cohesive picture of your organization as a whole. Completing your monitoring activities within LogicManager, a comprehensive ERM platform , you inherently break down organizational silos and ultimately eliminate the chances of missing critical pieces of information.

Learn more about how our interconnected platform can help you streamline your risk monitoring activities here .

Reporting On Your Risk Management Plan

If you’re a project manager, it’s likely that you have a more holistic, bird’s eye view of the project’s progress than the rest of your project team. While they’re focused on completing day-to-day tasks to complete a larger initiative, you’re looking at the bigger picture.

One of the best ways to communicate that bigger picture to your project team is through reports. Presenting information about your project – as well as everyone’s alignment with your risk management plan – demonstrates effectiveness and strong leadership, and can rally the support of various stakeholders.

Examples of reports for your risk management plan

It’s important that these risk reports are engaging and easily digestible so that your project team has a clear understanding of where their efforts and the work of their team members stands. LogicManager’s risk reports are built on powerful taxonomy technology that centralizes information and breaks down silos. Our software comes with a wide range of reports that enable you to do anything from checking the status of outstanding tasks and reviewing incidents, to proving compliance and ensuring policies are up to date.

Achieve your risk management plan with LogicManager

As a Project Manager, risk is just one of your many duties; but it’s an integral one. Identifying the risks that may threaten the successful completion of your capital, strategic and tactical goals is the only way to ensure everything stays on trajectory.

But you’re also responsible for prioritizing and tracking the status of the project (and possibly many others) all the while respecting your project team’s time, the quality of the results, and your budget. Reporting is a must as you communicate the risks, opportunities, and needs of projects to stakeholders like your project team, senior management, and the board.

Without project risk management software , staying on time, on budget, and on scope is difficult.

  • Spreadsheets and emails make information hard to collect, update and share.
  • Engaging the proper business units and subject matter experts requires an unnecessary amount of effort without an automated system.
  • Knowing where to start a project risk assessment is a headache without a framework of project risk management tools.
  • Reporting is inefficient when you have to hunt down information across disparate systems.

It’s a hard job, but LogicManager makes it easy by erasing all your pain points at once.

  • Prioritize your organization’s most critical projects and identify potential risks with intuitive and objective project risk assessments.
  • Create and link mitigation activities to the risks, resources, and processes they impact with taxonomy technology.
  • Confidently embark on new projects with one standardized framework.
  • Enhance collaboration and communication across the enterprise with automated workflows, notifications, and reminders.
  • Maintain your responsibilities and track the status of your projects with easily accessible to-do lists.
  • Align with industry best practices like ISO by leveraging ready-made libraries of standards and regulations.
  • Track project incidents and outline steps towards maturity with integrated incident management capabilities.
  • Effectively communicate status, timeline, and risks to the board with ready-made, highly configurable reports, and dashboards.

Ready to make project risk management easy with LogicManager? Request a demo today and see how our software can help you prioritize your projects, streamline communication, and ensure successful completion.

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Identifying Risks

Physical risks, location risks, human risks, technology risks, strategic risks, making a risk assessment, insuring against risks, risk prevention, the bottom line.

  • Business Essentials

Identifying and Managing Business Risks

risk management for business plan

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

risk management for business plan

Running a business comes with many types of risk. Some of these potential hazards can destroy a business, while others can cause serious damage that is costly and time-consuming to repair. Despite the risks implicit in doing business, CEOs and risk management officers can anticipate and prepare, regardless of the size of their business.

Key Takeaways

  • Some risks have the potential to destroy a business or at least cause serious damage that can be costly to repair.
  • Organizations should identify which risks pose a threat to their operations.
  • Potential threats include location hazards such as fires and storm damage, a l cohol and drug abuse among personnel, technology risks such as power outages, and strategic risks such as investment in research and development.
  • A risk management consultant can recommend a strategy including staff training, safety checks, equipment and space maintenance, and necessary insurance policies.

If and when a risk becomes a reality, a well-prepared business can minimize the impact on earnings, lost time and productivity, and negative impact on customers. For startups and established businesses, the ability to identify risks is a key part of strategic business planning . Risks are identified through a number of ways. Strategies to identify these risks rely on comprehensively analyzing a company's specific business activities. Most organizations face preventable, strategic and external threats that can be managed through acceptance, transfer, reduction, or elimination.

A risk management consultant can help a business determine which risks should be covered by insurance.

Below are the main types of risks that companies face:

Building risks are the most common type of physical risk. Think fires or explosions. To manage building risk, and the risk to employees, it is important that organizations do the following:

  • Make sure all employees know the exact street address of the building to give to a 911 operator in case of emergency.
  • Make sure all employees know the location of all exits.
  • Install fire alarms and smoke detectors.
  • Install a sprinkler system to provide additional protection to the physical plant, equipment, documents and, of course, personnel.
  • Inform all employees that in the event of emergency their personal safety takes priority over everything else. Employees should be instructed to leave the building and abandon all work-associated documents, equipment and/or products.

Hazardous material risk is present where spills or accidents are possible. The risk from hazardous materials can include:

  • Toxic fumes
  • Toxic dust or filings
  • Poisonous liquids or waste

Fire department hazardous material units are prepared to handle these types of disasters. People who work with these materials, however, should be properly equipped and trained to handle them safely.

Organizations should create a plan to handle the immediate effects of these risks. Government agencies and local fire departments provide information to prevent these accidents. Such agencies can also provide advice on how to control them and minimize their damage if they occur.

Among the location hazards facing a business are nearby fires, storm damage, floods, hurricanes or tornados, earthquakes, and other natural disasters. Employees should be familiar with the streets leading in and out of the neighborhood on all sides of the place of business. Individuals should keep sufficient fuel in their vehicles to drive out of and away from the area. Liability or property and casualty insurance are often used to transfer the financial burden of location risks to a third-party or a business insurance company.

There are other business risks associated with location that are not directly related to hazards, such as city planning. For example, a gas station exists on a major road, and as a result of its location, it receives plenty of business. City planning can eventually restructure the area around the gas station. The city may close the road the gas station is on, build other infrastructure that would make the gas station inaccessible, or overall just not take the gas station into consideration with any redevelopment. This would leave the gas station with no traffic to serve.

Alcohol and drug abuse are major risks to personnel in the workforce. Employees suffering from alcohol or drug abuse should be urged to seek treatment, counseling, and rehabilitation if necessary. Some insurance policies may provide partial coverage for the cost of treatment.

Protection against embezzlement , theft and fraud may be difficult, but these are common crimes in the workplace. A system of double-signature requirements for checks, invoices, and payables verification can help prevent embezzlement and fraud. Stringent accounting procedures may discover embezzlement or fraud. A thorough background check before hiring personnel can uncover previous offenses in an applicant's past. While this may not be grounds for refusing to hire an applicant, it would help HR to avoid placing a new hire in a critical position where the employee is open to temptation.

Illness or injury among the workforce is a potential problem. To prevent loss of productivity, assign and train backup personnel to handle the work of critical employees when they are absent due to a health-related concern. Other human-related risks under public attention could be associated with their behaviors and values. Misbehavior of management related to bias, racism, sexism, harassment, corruption, discrimination, pollutive actions, and carelessness about the environment are all actions that represent risk for the companies where these managers work.

A power outage is perhaps the most common technology risk. Auxiliary gas-driven power generators are a reliable back-up system to provide electricity for lighting and other functions. Manufacturing plants use several large auxiliary generators to keep a factory operational until utility power is restored.

Computers may be kept up and running with high-performance back-up batteries. Power surges may occur during a lightning storm (or randomly), so organizations should furnish critical business systems with surge-protection devices to avoid the loss of documents and the destruction of equipment.

Cloud storage is another source of risks nowadays. The process involves backing up data with Amazon Web Services, for example, using Azure, IBM, and Oracle, for instance. This is a huge undertaking that should be considered given the reliance on cloud-based data to run most businesses now. It is important to establish both offline and online data backup systems to protect critical documents.

Although telephone and communications failure are relatively uncommon, risk managers may consider providing emergency-use company cell phones to personnel whose use of the phone or internet is critical to their business.

Strategy risks are not altogether undesirable. Financial institutions such as banks or credit unions take on strategy risk when lending to consumers, while pharmaceutical companies are exposed to strategy risk through  research and development  for a new drug. Each of these strategy-related risks is inherent in an organization's business objectives. When structured efficiently, the acceptance of strategy risks can create highly profitable operations.

Companies exposed to substantial strategy risk can mitigate the potential for negative consequences by creating and maintaining infrastructures that support high-risk projects. A system established to control the financial hardship that occurs when a risky venture fails often includes diversification of current projects, healthy cash flow, or the ability to finance new projects in an affordable way, and a comprehensive process to review and analyze potential ventures based on future return on investment .

After the risks have been identified , they must be prioritized in accordance with an assessment of their probability. The first step is to establish a probability scale for the purposes of risk assessment .

For example, risks may:

  • Be very likely to occur
  • Have some chance of occurring
  • Have a small chance of occurring
  • Have very little chance of occurring

Other risks must be prioritized and managed in accordance with their likelihood of occurring. Actuarial tables —statistical analysis of the probability of any risk occurring and the potential financial damage ensuing from the occurrence of those risks—may be accessed online and can provide guidance in prioritizing risk.

Insurance is a principle safeguard in managing risk, and many risks are insurable. Fire insurance is a necessity for any business that occupies a physical space, whether owned outright or rented, and should be a top priority. Product liability insurance, as an obvious example, is not necessary for a service business.

Some risks are an inarguably high priority, for example, the risk of fraud or embezzlement where employees handle money or perform accounting duties in accounts payable and receivable. Specialized insurance companies will underwrite a cash bond to provide financial coverage in the event of embezzlement, theft or fraud.

When insuring against potential risks, never assume a best-case scenario. Even if employees have worked for years with no problems and their service has been exemplary, insurance against employee error may be a necessity. The extent of insurance coverage against injury will depend on the nature of your business. A heavy manufacturing plant will, of course, require more extensive coverage for employees. Product liability insurance is also a necessity in this context.

If a business relies heavily on computerized data—customer lists and accounting data, for example—exterior backup and insurance coverage is necessary. Finally, hiring a risk management consultant may be a prudent step in the prevention and management of risks.

The best risk insurance is prevention. Preventing the many risks from occurring in your business is best achieved through employee training, background checks, safety checks, equipment maintenance and maintenance of the physical premises. A single, accountable staff member with managerial authority should be appointed to handle risk management responsibilities. A risk management committee may also be formed with members assigned specific tasks with a requirement to report to the risk manager.

The risk manager, in conjunction with a committee, should formulate plans for emergency situations such as:

  • Hazardous materials accidents or the occurrence of other emergencies

Employees must know what to do and where to exit the building or office space in an emergency. A plan for the safety inspection of the physical premises and equipment should be developed and implemented regularly including the training and education of personnel when necessary. A periodic, stringent review of all potential risks should be conducted. Any problems should be immediately addressed. Insurance coverage should also be periodically reviewed and upgraded or downgraded as needed.

Prevention is the best insurance against risk. Employee training, background checks, safety checks, equipment maintenance, and maintenance of physical premises are all crucial risk management strategies for any business.

While business risks abound and their consequences can be destructive, there are ways and means to ensure against them, to prevent them, and to minimize their damage, if and when they occur. Finally, hiring a risk management consultant may be a worthwhile step in the prevention and management of risks.

risk management for business plan

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Free Risk Management Plan Templates

By Andy Marker | August 2, 2017

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Risks are not inherently bad - sometimes taking a risk can lead to big rewards. However, risks do represent uncertainty, and if you’re managing an organization or project, having a clear understanding of potential risks can help you move forward and make decisions with confidence. Risk management is the process of identifying risks, analyzing them to assess their likelihood and potential impact on a program, and developing and implementing methods for responding to each risk. To support your risk management planning, this page offers multiple templates that are free to download. Choose from simple matrix templates or more comprehensive risk management plan templates for Excel, Word, and PDF, all of which are fully customizable to meet the needs of your specific enterprise or project.

Risk Management Planning Templates for Excel

Project risk management plan template.

Project risk management plan template

This template allows you to create a project risk management plan for Excel, which may be helpful for adding any numerical data or calculations. You include typical sections in the template, such as risk identification, analysis and monitoring, roles and responsibilities, and a risk register. Add or remove sections to create a customized template for your project.

Download Project Risk Management Plan Template

Excel | Smartsheet

Risk Register Template

risk management for business plan

On this risk register template, you include project details at the top and list risks below with assigned tracking numbers. The register provides a detailed log of who owns a risk, the level of impact and probability, planned actions, and the response status. This is a spreadsheet template that can be easily edited to include additional columns if needed. 

Download Risk Register Template

Risk Assessment Matrix

Risk Assessment Matrix Template

This simple matrix template is designed to aid the assessment process, providing a quick view of the relationship between the likelihood of occurrence and the severity of impact, as well as the number of risks that fall into each category. The color scheme makes it easy to distinguish among the different ratings, so you can get an overview of the levels of risk that need to be addressed.

Download Risk Assessment Matrix

Excel | Word | PDF | Smartsheet

Risk Management Matrix

Risk Management Matrix Template

For some smaller projects, you may only need to use a risk management matrix (rather than create a lengthy management plan). You can also use this matrix template, in addition to a detailed plan, to organize vital information in a single spreadsheet. The template includes a risk assessment matrix for getting an overview of risk ratings, plus a management matrix for identifying and assessing risks, describing mitigation strategies, and monitoring control efforts.

Download Risk Management Matrix

Risk Breakdown Structure Diagram

Risk breakdown structure diagram template

You can use this template to create an RBS diagram based on the risks involved at the different stages of a project’s work breakdown structure. You can also use the RBS template to organize risks by category by breaking down internal risks into subcategories, such as technical or organizational, and distinguishing them from external risks. This is a helpful tool for organizing risks visually and listing them in the risk register.

Download Risk Breakdown Structure Diagram

Other Risk Management Templates

Risk management plan template - word.

Risk management plan template

This risk management plan sample offers a basic layout that you can develop into a comprehensive plan for project or enterprise risk management. It includes a matrix for viewing probability and impact as well as sections for describing a risk management approach, budgeting, scheduling and reporting protocols, and more. 

Download Risk Management Plan Template

Word | Smartsheet

Risk Action Plan Template

Risk action plan template

An action plan template allows you to go into detail about proposed actions for a specific risk. This PDF template offers a simple layout with sections for describing the risk and recommended response, defining an action plan, listing required resources, assigning responsibility, and setting a timeline for completion. 

Download Risk Action Plan Template

Excel  |  Word  | PDF

Project Risk Management

The Project Management Body of Knowledge (PMBOK® Guide, 5th Edition) defines project risk as “an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives, such as scope, schedule, cost, or quality.” Notice that these risks can be considered positive or negative depending on their effects. Project risk management seeks to maximize positive risks while avoiding or mitigating negative risks. A risk management plan is typically included as part of a larger project plan, and is initiated early in the project lifecycle; the risk plan then evolves as the project progresses. It is generally the project manager’s role to maintain the plan and update it periodically to ensure ongoing clarity and effectiveness. 

The overall goal of a risk management plan is to manage risk in a way that ensures a successful project outcome. The planning process enables managers to clearly identify risks, and then develop and document risk mitigation strategies and contingency plans. The process also includes identifying both the costs and actions necessary for implementing the plan. Once completed, the plan serves as a guide for everyone involved in a project and is particularly important as a tool to communicate with key stakeholders.

Ways to Handle Risk

Once you’ve identified and evaluated a risk, there are several potential responses. The response you choose will depend on the probability of the risk occurring and the potential severity of its impact on a project. 

  • Avoid: Avoiding risks is ideal, and especially important if the risk is high impact and likely to occur. Avoidance tactics may require greater investment (in order to develop alternative strategies), but this additional cost and effort is appropriate for high-impact, high-probability negative risks.
  • Transfer: This method refers to transferring risk to another party (for example, the act of purchasing insurance moves the risk to the insurance provider). This response is common for risks that have a high negative impact but a low probability of occurring.
  • Mitigate: Mitigation aims to reduce either the likelihood or the level of impact of a risk, and is used for risks that are likely to occur, but also likely to be low-impact.
  • Accept: Acceptance is an option when there is no other solution, but would only be used for low-impact risks that have a low probability of occurring. 

Risks can be internal or external, and projects may face a combination of both. Internal risks may include issues with technology, staffing, financial security, and other factors that can be controlled within your organization. External risks can be harder to predict and control, and may include factors such as issues with suppliers, changes in the political climate or economy, or even the weather. The process of analyzing risks and measuring them on a scale of probability and severity can provide the initial framework for determining which of the above methods will be the most effective response to a given risk.

Risk Management and HIPAA Compliance in Healthcare Organizations

Healthcare organizations are under strict regulations when it comes to risk and compliance. That’s why the ability to determine where those risks exist and establish a plan to manage them is extremely important for the business, both legally and functionally.

Risk management for healthcare organizations helps to ensure the all businesses are compliant with HIPAA requirements, and outlines potential risks that could occur in a healthcare organization, such as clinical testing errors, hospital facilities issues, security breaches of protected health information PHI, and more. To ensure that all healthcare data is effectively analyzed for security and protection purposes, you need a tool that is able to quickly identify, mitigate, and prevent risks from coming to fruition, while also offering real-time visibility into all potential risks.

Smartsheet is a work execution platform that enables healthcare companies to view and update risks across the company with real-time dashboards, so you can make the best decisions at the right time. Highlight all identified risks and manage how they are addressed, all while ensuring utmost security and protection of PHI. Set sharing settings to ensure that only authorized users have access to confidential information, so your organization remains compliant with HIPAA regulations.

Interested in learning more about how Smartsheet can help you accurately and securely document healthcare processes and maximize your efforts? Discover Smartsheet for Healthcare .

Example of Risk Management Plan Outline

The length and level of detail included in a risk management plan will vary depending on the scope of a project and the needs of an organization. Here is a risk management plan example outline that describes the information you typically include:

  • Introduction: The first section in a risk management plan may focus on an executive summary or project description, including the purpose of the project. It may go into detail about the scope of the project, objectives, and important background information, and provide an overview of risk management approach and strategies. 
  • Risk Management Approach: This may be a brief summary or detailed section providing information on the risk management process, the methodology used, and specific tools and techniques to be utilized.
  • Roles and Responsibilities: Here you list the project staff members involved in the risk process, along with each of their roles and responsibilities. 
  • Risk Identification: This section describes how you will identify risks and/or lists risks that you have already found. Methods for risk identification may include brainstorming, examining the project’s work breakdown structure (WBS) in order to identify risks and create a corresponding risk breakdown structure (RBS), conducting expert interviews, consulting with key stakeholders, or reviewing common risks from similar projects. 
  • Risk Analysis and Evaluation: You must analyze risks that you identify to determine what effects they might have on a project, such as a delayed timeline or reduced quality. You must also evaluate these risks for probability and impact. This section may describe how probability of occurrence and impact are calculated and combined to create a numeric score for each risk. Here, you can also define the categories and terms you use to describe the different levels of probability and impact. In addition, if you’ve determined top risks, you can list them here.
  • Risk Response Planning: You can explain the process for conducting response planning here, including how a project team will develop actions to address both negative and positive risks. 
  • Risk Mitigation: You can list potential risk mitigation strategies here, connecting possible actions to risks based on the level of seriousness. This section may also consider important risks that you have identified, providing detail on what type of mitigation you’ve proposed, ownership for implementing the action, and cost implications.
  • Risk Monitoring and Reporting: This section may describe how you will monitor risks, the frequency of reviews, how you will identify new risks, and the method and schedule you will use for reporting. 
  • Risk Register: Also called a risk log, the register typically appears at the end of a risk management plan, or as a separate document. The register tracks important details about each risk including probability, impact, overall score, and status. It essentially combines the results from risk analysis and response planning into a spreadsheet or chart for easy reference.

You will need to adjust the content and formatting of this example plan to meet the needs of your business or project. To see how others have handled this process for similar projects, you can search for sample risk management plans online and compare different approaches. Comparing project risk management plan examples may save you time in the long run, especially if you are new to the process. To use the free templates provided below, simply download your chosen file, and make any required edits.

Create a Powerful Risk Management Plan With Smartsheet

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Any articles, templates, or information provided by Smartsheet on the website are for reference only. While we strive to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, articles, templates, or related graphics contained on the website. Any reliance you place on such information is therefore strictly at your own risk. 

These templates are provided as samples only. These templates are in no way meant as legal or compliance advice. Users of these templates must determine what information is necessary and needed to accomplish their objectives.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.

A risk management plan can help minimise the impact of risks that could weaken your cash flow or damage your brand. It will also help create a culture of sensible risk awareness and management in your business.

Our Crisis planning template and checklist includes a risk management plan:

Follow these steps to create a risk management plan that's tailored for your business.

1. Identify risks

What are the risks to your business?

For example:

  • data breach
  • contamination
  • power outage

Some risks will cause major disruption while others will be a minor irritation.

2. Assess the risks

Assess the risks that you've identified.

Try to estimate the:

  • potential severity of each risk
  • likelihood that it might happen

Prioritise your risk planning based on the results of your assessment.

3. Minimise or eliminate risks

Some risks are preventable, so eliminate or minimise these where possible. For some risks, it might be as simple as installing an alarm system or buying extra personal protective equipment (PPE).

Check your insurance

Insurance is one way to reduce the impact of an event or disaster.

For example, business interruption insurance can make sure that you receive your average earnings for the insured period until you're able to start operating again.

Make sure your insurance is enough to cover you in the event of a significant disruption to your business.

4. Assign responsibility for tasks

Identify what needs to happen if a crisis or disaster occurs and who is responsible for each action. Having clear directions is one of the simplest and most powerful tools for a fast recovery.

5. Develop contingency plans

Come up with contingency plans for how you'll continue or resume your operations if a crisis occurs. Your contingency plan is basically your 'plan B' for risks that you can't avoid completely.

Your contingency plans will depend on the:

  • type, style and size of your business
  • extent of the damage

6. Communicate the plan and train your staff

People in or connected to your business must be aware of the strategies you've put in place to mitigate or recover from a disaster situation.

To do this:

  • Decide if you'll communicate by phone, email, text or other means.
  • Create procedural statements.
  • Inform the relevant people (such as staff, suppliers, contractors and service providers).

Next, train your staff in your procedures and have them practise. This way if a disaster occurs, the process can take over and guide the staff.

7. Monitor for new risks

Risks can pop up during day-to-day operations, so it's important to know how to identify potential risks before they escalate.

Continuously monitoring for risks will help you develop realistic and effective strategies for dealing with issues if they occur.

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Uncovering Hidden Risks: A Comprehensive Guide to Business Plan Risk Analysis

Risk Management Process - Business Plan

A modern business plan that will lead your business on the road to success must have another critical element. That element is a part where you will need to cover possible risks related to your small business. So, you need to focus on  managing risk  and use  risk management processes  if you want to succeed as an entrepreneur.

How can you manage risks?

You can always plan and  predict  future things in a certain way that will happen, but your impact is not always in your hands. There are many  external factors  when it comes to the business world. They will always influence the realization of your plans. Not only the realization but also the results you will achieve in implementing the specific plan. Because of that, you need to look at these factors through the prism of the risk if you want to implement an appropriate management process while implementing your business plan.

By conducting a thorough risk analysis, you can manage risks by identifying potential threats and uncertainties that could impact your business. From market fluctuations and regulatory changes to competitive pressures and technological disruptions, no risk will go unnoticed. With these insights, you can develop contingency plans and implement risk mitigation strategies to safeguard your business’s interests.

This guide will provide practical tips and real-life examples to illustrate the importance of proper risk analysis. Whether you’re a startup founder preparing a business plan or a seasoned entrepreneur looking to reassess your risk management approach, this guide will equip you with the knowledge and tools to navigate the complex landscape of business risks.

Why is Risk Analysis Important for Business Planning?

Risk analysis is essential to business planning as it allows you to proactively identify and assess potential risks that could impact your business objectives. When you conduct a comprehensive risk analysis, you can gain a deeper understanding of the threats your business may face and can take proactive measures to mitigate them.

One of the key benefits of risk analysis is that it enables you to prioritize risks based on their potential impact and likelihood of occurrence . This helps you allocate resources effectively and develop contingency plans that address the most critical risks.

Additionally, risk analysis allows you to identify opportunities that may arise from certain risks , enabling you to capitalize on them and gain a competitive advantage.

It is important to adopt a systematic approach to effectively analyze risks in your business plan. This involves identifying risks across various market, operational, financial, and legal areas. By considering risks from multiple perspectives, you can develop a holistic understanding of your business’s potential challenges.

What is a Risk for Your Small Business?

In dictionaries, the risk is usually defined as:

The possibility of dangerous or bad consequences becomes true .

When it comes to businesses,  entrepreneurs , or in this case, the business planning process, it is possible that some aspects of the business plan will not be implemented as planned. Such a situation could have dangerous or harmful consequences for your small business.

It is simple. If you don’t implement something you have in your business plan, there will be some negative consequences for your small business.

Here is how you can  write the business plan in 30 steps .

Types of Risks in Business Planning

When conducting a business risk assessment for your business plan, it is essential to consider various types of risks that could impact your venture. Here are some common types of risks to be aware of:

1. Market risks

These risks arise from fluctuations in the market, including changes in consumer preferences, economic conditions, and industry trends. Market risks can impact your business’s demand, pricing, and market share.

2. Operational risk

Operational risk is associated with internal processes, systems, and human resources. These risks include equipment failure, supply chain disruptions, employee errors, and regulatory compliance issues.

3. Financial risks

Financial risks pertain to managing financial resources and include factors such as cash flow volatility, debt levels, currency fluctuations, and interest rate changes.

4. Legal and regulatory risks

Legal and regulatory risks arise from changes in laws, regulations, and compliance requirements. Failure to comply with legal and regulatory obligations can result in penalties, lawsuits, and reputational damage.

5. Technological risks

Technological risks arise from rapid technological advancements and the potential disruptions they can cause your business. These risks include cybersecurity threats, data breaches, and outdated technology infrastructure.

Basic Characteristics of Risk

Before you start with the development of your small  business risk  management process, you will need to know and consider the essential characteristics of the possible risk for your company.

What are the basic characteristics of a possible risk?

The risk for your company is partially unknown.

Your  entrepreneurial work  will be too easy if it is easy to predict possible risks for your company. The biggest problem is that the risk is partially unknown. Here we are talking about the future, and we want to prepare for that future. So, the risk is partially unknown because it will possibly appear in the future, not now.

The risk to your business will change over time.

Because your businesses operate in a highly dynamic environment, you cannot expect it to be something like the default. You cannot expect the risk to always exist in the same shape, form, or consequence for your company.

You can predict the risk.

It is something that, if we want, we can predict through a  systematic process . You can easily predict the risk if you install an appropriate risk management process in your small business.

The risk can and should be managed.

You can always focus your resources on eliminating or reducing risk in the areas expected to appear.

risk management in business plan

Risk Management Process You Should Implement

The risk management process cannot be seen as static in your company. Instead of that, it must be seen as an interactive process in which information will continuously be updated and analyzed. You and your small business members will act on them, and you will review all risk elements in a specified period.

Adopting a systematic approach to identifying and assessing risks in your business plan is crucial. Here are some steps to consider:

1. Risk Identification

First, you must identify risk areas . Ask and respond to the following questions:

  • What are my company’s most significant risks?
  • What are the risk types I will need to follow?

In business, identifying risk areas is the process of pinpointing potential threats or hazards that could negatively impact your business’s ability to conduct operations, achieve business objectives, or fulfill strategic goals.

Just as meteorologists use data to predict potential storms and help us prepare, you can use risk identification to foresee possible challenges and create plans to deal with them.

Risk can arise from various sources, such as financial uncertainty, legal liabilities, strategic management errors, accidents, natural disasters, and even pandemic situations. Natural disasters can not be predicted or avoided, but you can prepare if they appear.

For example, a retail business might identify risks like fluctuating market trends, supply chain disruptions, cybersecurity threats, or changes in consumer behavior. As you can see, the main risk areas are related to types of risk: market, financial, operational, legal and regulatory, and technological risks.

You can also use business model elements to start with something concrete:

  • Value proposition,
  • Customers ,
  • Customers relationships ,
  • Distribution channels,
  • Key resources and
  • Key partners.

It is not necessarily that there will be risk in all areas and that the risk will be with the same intensity for all areas. So, based on your business environment, the industry in which your business operates, and the business model, you will need to determine in which of these areas there is a possible risk.

Also, you must stay informed about external factors impacting your business, such as industry trends, economic conditions, and regulatory changes. This will help you identify emerging risks and adapt your risk management strategies accordingly.

The idea for this step is to create a table where you will have identified potential risks in each important area of your business.

Business Risks Identification

2. Risk Profiling

Conduct a detailed analysis of each identified risk, including its potential impact on your business objectives and the likelihood of occurrence. This will help you develop a comprehensive understanding of the risks you face.

Qualitative Risk Analysis

The qualitative risk analysis process involves assessing and prioritizing risks based on ranking or scoring systems to classify risks into low, medium, or high categories. For this analysis, you can use customer surveys or interviews.

Qualitative risk analysis is quick, straightforward, and doesn’t require specialized statistical knowledge to conduct a business risk assessment. The main negative side is its subjectivity, as it relies heavily on thinking about something or expert judgment.

This method is best suited for initial risk assessments or when there is insufficient quantitative analysis data .

For example, if we consider the previously identified risk of a sudden shift in consumer preferences, a qualitative analysis might rate its likelihood as 7 out of 10 and its impact as 8 out of 10, placing it in the high-priority quadrant of our risk matrix. But, qualitative analysis can also use surveys and interviews where you can ask open questions and use the qualitative research process to make this scaling. This is much better because you want to lower the subjectivism level when doing business risk assessment.

Quantitative Risk Analysis

On the other side, the quantitative risk analysis method involves numerical and statistical techniques to estimate the probability and potential impact of risks. It provides more objective and detailed information about risks.

Quantitative risk analysis can provide specific, data-driven insights, making it easier to make informed decisions and allocate resources effectively. The negative side of this method is that it can be time-consuming, complex, and requires sufficient data.

You can use this approachfor more complex projects or when you need precise data to inform decisions, especially after a qualitative analysis has identified high-priority risks.

For example , for the risk of currency exchange rate fluctuations, a quantitative analysis might involve analyzing historical exchange rate data to calculate the probability of a significant fluctuation and then using your financial data to estimate the potential monetary impact.

Both methods play crucial roles in effectively managing risks. Qualitative risk analysis helps to identify and prioritize risks quickly, while quantitative analysis provides detailed insights for informed decision-making.

3. Business Risk Assessment Matrix

Once you have identified potential risks and analyzed their likelihood and potential impact, you can create a business risk assessment matrix to evaluate each risk’s likelihood and impact. This matrix will help you prioritize risks and allocate resources accordingly.

A business risk assessment matrix, sometimes called a probability and impact matrix, is a tool you can use to assess and prioritize different types of risks based on their likelihood (probability) and potential damage (impact). Here’s a step-by-step process to create one:

  • Step 1: Begin by listing out your risks . For our example, let’s consider four of the risks we identified earlier: a sudden shift in consumer preferences (Market Risk), currency exchange rate fluctuations (Financial Risk), an increase in the minimum wage (Legal), and cybersecurity threats (Technological Risk).
  • Step 2: Determine the likelihood of each risk occurring . In the process of risk profiling, we’ve determined that a sudden shift in consumer preferences is highly likely, currency exchange rate fluctuations are moderately likely, an increase in the minimum wage, and cybersecurity threats are less likely but still possible.
  • Step 3: Assess the potential impact of each risk on your business if it were to occur . In our example, we might find that a sudden shift in consumer preferences could have a high impact, currency exchange rate fluctuations a moderate impact, an increase in minimum wage minor impact, and cybersecurity threats a high impact.
  • Step 4: Plot these risks on your risk matrix . The vertical axis represents the likelihood (high to low), and the horizontal axis represents the consequences (high to low).

Risk Assessment Matrix

By visualizing these risks in a risk assessment matrix format, you can more easily identify which risks require immediate attention and which ones might need long-term strategies.

4. Develop Risk Indicators for Each Risk You Have Identified

The question is, how will you measure the business risks for your company?

Risk indicators are metrics used to measure and predict potential threats to your business. Simply, a risk indicator is a measure that should tell you whether the risk appears or not in a particular area you have defined previously. They act like a business’s early warning system. When these indicators change, it’s a signal that the risk level may be increasing.

For example, for distribution channels, an indicator can be a delay in delivery for a minimum of three days. This indicator will tell you something is wrong with that channel, and you must respond appropriately.

Now, let’s consider some risk indicators for the risks we have already identified and analyzed:

Risk Indicators

If you conduct all the steps until now, you can have a similar table with risk indicators in your business plan. You should monitor these indicators regularly, and if you notice a significant change, such as a drop in sales or an increase in attempted breaches, it’s time to investigate and take some action steps. This might involve updating your product line, hedging against currency risk, budgeting for higher wages, or improving your cybersecurity measures.

Remember, risk indicators can’t predict the future with certainty. But they can give you valuable insights that can help you prepare for potential threats.

5. Define Possible Action Steps

The question is, what can you do regarding the risk if the risk indicator tells you that there is a potential risk?

Once the risk has appeared and is located, it is time to take concrete action steps. The goals of this step are not only to reduce or eliminate the impact of the risk for your company but also to prevent them in the future and reduce or eliminate their influence on the business operations or the execution of your business plan.

For example, for distribution channels with delivery delayed more than three days, possible activities can be the following:

  • Apologizing to the customers for the delay,
  • Determining the reasons for the delay,
  • Analysis of the reasons,
  • Removing the reasons,
  • Consideration of alternative distribution channels, etc.

In this part of the business plan for each risk area and indicator, try to standardize all possible actions. You can not expect that they will be final. But, you can cover some basic guidelines that must be implemented if the risk appears. Here is an example of how this part will look in your business plan related to risks we have already identified through the risk assessment process.

Action Steps When Risk Appear

6. Monitoring

Because this risk management process is dynamic , you must apply the monitoring process. In such a way, you can ensure the elimination of a specific kind of risk in the future, and you will allocate your resources to new possible risks.

After implementing the actions, you need to ask yourself the following questions:

  • Are the actions taken regarding the risk the proper measures?
  • Can you improve something regarding the risk management process? Is there a need for new risk indicators?

Techniques and Tools for Business Plan Risk Assessment

Various risk analysis methods, techniques, and tools are available to conduct an effective risk analysis for your business plan. Here are some commonly used ones:

1. SWOT analysis

A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis can help you identify internal strengths and weaknesses and external opportunities and threats. This analysis provides valuable insights into possible business risks and opportunities.

2. PESTEL analysis

A PESTEL (Political, Economic, Sociocultural, Technological, Environmental, Legal) analysis assesses the external factors that could impact your business. This analysis will help you identify risks and opportunities arising from these factors.

3. Scenario analysis

Consider different scenarios that could impact your business, such as best-case, worst-case, and most likely scenarios, as a part of your risk assessment process. You can anticipate potential risks and develop appropriate response strategies by analyzing these scenarios.

4. Monte Carlo simulation

Monte Carlo simulation uses random sampling and probability distributions to model various scenarios and assess their potential impact on your business. This technique provides you with a more accurate understanding of risk exposure.

5. Risk register

A risk register is a risk analysis tool that helps you record and track identified risks and their relevant details, such as impact, likelihood, mitigation strategies, and responsible parties. This tool ensures that risks are appropriately managed and monitored.

6. Business Impact Analysis (BIA)

Business impact analysis helps you understand the potential effects of various disruptions on your business operations and objectives. It’s about identifying what could go wrong and understanding how it could impact your bottom line. So, you can conduct business impact analysis as a part of your risk assessment inside your business plan.

7. Failure Mode and Effects Analysis (FMEA)

Using FMEA in your risk assessment process, you can proactively address potential problems, ensuring your business operations run as smoothly as you planned. It’s all about preparing for the worst while striving for the best.

8. Risk-Benefit Analysis (RBA)

The risk-benefit analysis allows you to make informed decisions, balancing the potential for gain against the potential for loss. It helps you choose the best path, even when the way forward isn’t entirely clear. This tool is a systematic approach to understanding the specific business risk and benefits associated with a decision, process, or project.

9. Cost-Benefit Analysis

By conducting a cost-benefit analysis as a part of your risk assessments, you can make data-driven decisions that consider both the possible risks (costs) and rewards (benefits). This approach provides a clear picture of the potential return on investment, enabling more effective and confident decision-making.

These techniques and tools allow you to conduct a comprehensive risk analysis for your business plan.

Mitigating and Managing Risks in a Business Plan

Identifying risks in your business plan is only the first step. To ensure the success of your venture, it is crucial to develop effective risk mitigation and management strategies. Here are some critical steps to consider:

  • Risk avoidance : Some risks may be too high to justify taking. In such cases, consider avoiding these risks altogether by adjusting your business plan or exploring alternative strategies.
  • Risk transfer : Transferring risks to third parties, such as insurance companies or outsourcing partners, can help mitigate their impact on your business. Evaluate opportunities for risk transfer and consider appropriate insurance coverage.
  • Risk reduction : Implement measures to reduce the likelihood and impact of identified risks. This may involve improving internal processes, implementing safety protocols, or diversifying your supplier base .
  • Risk acceptance : Some risks may be unavoidable or negatively impact your business. In such cases, accepting the risks and developing contingency plans can help minimize their impact.

In conclusion, a comprehensive risk analysis is essential for identifying, assessing, and managing different types of risk that could impact your success.

Conducting a thorough risk analysis can safeguard your business’s interests, capitalize on opportunities, and increase your chances of long-term success.

Dragan Sutevski

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  • Project planning |

Risk management plan template

Starting a project without considering risks is, well, a big risk to take. Prevent major issues from occurring in your project with a risk management plan template. Learn how to create a risk management plan template in Asana.

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Before you start a project, it’s important to take into account any potential issues and risks that can prevent your project from progressing smoothly. 

Using a risk management plan template can help you mitigate risk and establish a contingency plan so you can successfully hit your goals without a hitch. Here’s how to do it. 

What is a risk management plan template?

A risk management plan template is a tool to help project managers prevent and measure potential risks. While the content of the template may change from project to project, the main structure of the template will not change. Using a template to manage the risk management process can help expedite future projects and align your team members so they know what to expect in the event that a risk occurs.

[product ui] risk management plan template in Asana (list view)

Creating a risk management plan template also makes it easier to manage projects with multiple stakeholders. When everyone is familiar with your established template, there’s less of a learning curve each time you start a new project.

What’s the purpose of a risk management plan?

Why create a risk management plan template.

Creating a risk management plan template is a best practice for project management professionals, and for good reason. Here’s why you should create a project risk management plan template before starting a large project.

Proactively prevent risks

With a risk management plan template, you can proactively ensure that problems that could occur already have a solution before they ever happen. By assigning a specific risk to a team member, you’re specifying the person responsible for actively monitoring each potential risk. 

For some teams, developing mitigation strategies for high-impact projects is necessary before a project is even approved. This prevents high-risk projects from affecting major business operations. If your team doesn’t have mitigation plans in place, your project may not make it past the approval stage. 

Provide clarity

A risk management plan template gives your team clarity, especially when it comes to contingency plans . Stakeholders often don’t enjoy hearing that something could go wrong with a project schedule , but if you and your team already have response strategies in place, it’s much easier to quell that anxiety. Collaborative work management software like Asana allows everyone on your team to access important risk management documentation, such as a risk log, a risk assessment matrix , or other project documents. 

Encourage accountability

It’s not easy to own up to an issue when things go wrong. But when there’s an assigned risk owner, that individual is responsible for mitigating that risk as much as possible if it occurs. This allows team members to evaluate the negative impact of a potential risk and develop contingency plans if or when issues arise. Individual team members have the agency to find the right solution. And if any key stakeholders have questions regarding that specific risk, they know exactly which team member to ask. 

What to include in your risk management plan template

Creating a risk management plan template is easy, but the way you manage information within the plan can vary from team to team. So how should you organize the information in your risk management plan template?

One of the easiest ways to do this is by importance—for example, by ranking risks according to their potential impact on your project. Or, you could organize your risk management plan template by the likelihood of each risk happening. 

No matter how you organize your risk management plan template, it’s important to utilize a tool that is customizable and collaborative. That way, your team can organize your risk management plan template in a way that makes the most sense for your team. 

4 steps to use your risk management plan template

Brainstorm which risks to add. Use collaborative software so everyone on your team can identify and add any potential risks that can negatively impact your project. 

Assess the probability and impact of each risk. The probability and impact of each risk combined represents the potential impact of the risk. Make sure your template has a way to track both risk likelihood and severity.

Predict how likely each risk is . Based on historical data or previous projects, team members can predict the probability that each risk will occur. 

Monitor risks during the project lifecycle. The easiest way to do this is to assign team members a specific risk to monitor throughout the lifetime of a project.

Integrated features

Custom fields . Custom fields are the best way to tag, sort, and filter work. Create unique custom fields for any information you need to track—from priority and status to email or phone number. Use custom fields to sort and schedule your to-dos so you know what to work on first. Plus, share custom fields across tasks and projects to ensure consistency across your organization.

Dependencies . Mark a task as waiting on another task with task dependencies. Know when your work is blocking someone else’s work, so you can prioritize accordingly. Teams with collaborative workflows can easily see what tasks they’re waiting on from others, and know when to get started on their portion of work. When the first task is completed, the assignee will be notified that they can get started on their dependent task. Or, if the task your work is dependent on is rescheduled, Asana will notify you—letting you know if you need to adjust your dependent due date as well.

Start dates . Sometimes you don’t just need to track when a to-do is due—you also need to know when you should start working on it. Start times and dates give your team members a clear sense of how long each task should take to complete. Use start dates to set, track, and manage work to align your team's objectives and prevent dependencies from falling through the cracks.

Subtasks . Sometimes a to-do is too big to capture in one task. If a task has more than one contributor, a broad due date, or stakeholders that need to review and approve before it can go live, subtasks can help. Subtasks are a powerful way to distribute work and split tasks into individual components—while keeping the small to-dos connected to the overarching context of the parent task. Break tasks into smaller components or capture the individual components of a multi-step process with subtasks.

Gmail . With the Asana for Gmail integration, you can create Asana tasks directly from your Gmail inbox. Any tasks you create from Gmail will automatically include the context from your email, so you never miss a beat. Need to refer to an Asana task while composing an email? Instead of opening Asana, use the Asana for Gmail add-on to simply search for that task directly from your Gmail inbox. 

Outlook . As action items come in via email, like reviewing work from your agency or a request for design assets from a partner, you can now create tasks for them in Asana right from Outlook. You can then assign the new task to yourself or a teammate, set a due date, and add it to a project so it’s connected to other relevant work.

Zendesk . With Asana's Zendesk integration, users can quickly and easily create Asana tasks directly from Zendesk tickets. Add context, attach files, and link existing tasks to track work needed to close out the ticket. The integration also provides continuing visibility across both systems, so everyone is kept up to speed regardless of which tool they use. 

Jira . Create interactive, connected workflows between technical and business teams to increase visibility around the product development process in real time—all without leaving Asana. Streamline project collaboration and hand offs. Quickly create Jira issues from within Asana so that work passes seamlessly between business and technical teams at the right time.

Do I need a risk management plan template?

A risk management plan template is a helpful collaboration tool. If you’re looking for a way to connect your project team members and your key stakeholders, a risk management plan template can help your team get on the same page by compiling all work in one central place.

How do you use a risk management plan template?

A risk management plan template is most commonly used to help mitigate potential risks. Use your risk management plan template during the project planning phase. Brainstorm potential risks with your team and log them into your already existing template. Remember to include the likelihood of the risk happening, a description of the risk, and a team member who is responsible for that specific risk should it occur.

What is the purpose of a risk management plan template?

Use a risk management plan template to help mitigate risks as your team moves through the project lifecycle. You can use a risk management plan template to help align project managers and team members to establish a tentative plan if a risk happens. You can also use it to help establish set processes for future projects. This can help expedite the risk management process and give your team some guidelines to work with.

How do I make a risk management plan template?

Your risk management plan template should live in a project management platform that your entire team has access to. By tracking this information in a central source of truth, you can track all potential risks, the impact of those risks, and who is responsible for monitoring and reacting to the risk if it occurs. Your risk management plan template should include descriptions of potential risks, the level of impact a risk would have on a project, the likelihood of that risk occurring, and a dedicated individual to monitor that specific risk.

What are the benefits of creating a risk management plan template?

A risk management plan template can help your team proactively prevent risks, provide your team clarity on contingency plans, and encourage accountability with team members. Creating a risk management plan template can help standardize processes across the organization, further preventing more risk.

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More From Forbes

The five main steps in a compliance risk assessment plan.

Forbes Technology Council

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Michelle Drolet is CEO of Towerwall , a specialized cybersecurity firm offering compliance and professional cybersecurity solutions.

Cyberattacks and data breaches are no longer merely an IT problem. They have the potential to cause business disruption, financial damage and reputational harm. Data theft can introduce a raft of legal and data privacy implications for organizations. According to IBM, the average data breach now costs organizations $4.45 million .

Moreover, regulations are increasingly requiring organizations to follow industry cybersecurity compliance standards or suffer painful consequences. Nearly every industry—including government, financial services, retail, banking, insurance, education, healthcare and more—is required to comply with specific cybersecurity regulations, standards and frameworks.

What Is A Compliance Risk Assessment Plan, And Why Do Organizations Need One?

A security risk assessment is usually one of the most crucial components of any risk management exercise. Risk assessments typically involve activities such as risk identification, risk analysis, risk reporting and recommended mitigations.

On the other hand, a “compliance risk assessment” is a comprehensive review of all the industry standards, rules and regulations that a particular organization is subject to (from an industry and cybersecurity standpoint). Examples of these include HIPAA, NY DFS, PCI, GDPR and other privacy/security regulations. This is inclusive of how well-equipped the organization is to meet these rigid mandates and obligations.

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Compliance risk assessments must ideally be a repeated, annual or semi-annual process to keep track of any changes in compliance standards and to identify gaps in compliance processes. Organizations can use the compliance risk assessment remediation plan to achieve a specific compliance goal from scratch or build on what is already there.

Steps To A Regulatory And Compliance Risk Plan

A regulatory and compliance risk plan is much broader than a compliance risk assessment. It’s a holistic plan that is not just limited to identifying, assessing and evaluating compliance risks but also must include monitoring and mitigation of identified risks specific to the regulations needed to be adhered to. Let’s explore the key steps in a regulatory and compliance risk plan.

1. Set Clear Objectives And Budget

Start by defining the scope of the assessment. Which regulations, departments or processes should be included? Assemble a cross-functional team with relevant expertise and knowledge. Next, define the clear objectives of the exercise. Is the goal to identify risks? To achieve a specific regulatory and compliance? To prioritize areas for improvement? To allocate cybersecurity budgets?

Determine what assessment approach is preferred. Is it a self-assessment? A third-party assessment or a hybrid model? Once this is complete, establish a timeline and set a budget aside for the assessment.

2. Risk Identification And Analysis

Gather relevant information about regulations, standards, and policies that are imposed upon the customer based on the industry and region they operate in (e.g., CIPA, HIPAA, NYDFS, NIST CSF, PCI, NIST 800-53, CMMC, GDPR, FISMA). Also, don’t forget to map out any procedures, historical data and industry trends that are relevant.

Conduct workshops, interviews, surveys and brainstorming sessions to identify potential compliance risks. Categorize each identified risk by regulation, department, process or any other relevant criteria. Analyze each risk after considering the likelihood of its occurrence, potential impact (financial, reputational, legal) and existing controls.

3. Risk Evaluation And Control

Assess the effectiveness of existing security controls and processes. How effective are they in mitigating current risks? Identify the gaps and those risks that are not adequately addressed. Evaluate the risk tolerance for the organization and risk acceptance for each identified gap. How much risk is the business ready to accept? Does it accept the risks inherent in substandard security controls and processes? Prioritize risks based on a risk scoring system, considering likelihood, impact, existing controls and risk tolerance.

4. Remediation And Action Plan

Now that you have the list of prioritized corrective actions, develop an action plan for mitigation. Define specific remediation, responsible individuals, timelines, costs and resource requirements. Consider various remediation strategies such as implementing new cybersecurity controls, enhancing existing processes, training employees, etc. Brief the management team about your action plan and obtain their buy-in and approval for those actions.

5. Review And Iterate

Once an action plan is implemented, it is important to measure and monitor its effectiveness. Conduct the compliance assessment periodically and update the remediation roadmap as needed based on changes in regulations, business operations or risk landscape. Communicate the results achieved (success, failure, loose ends) and discuss the next steps with relevant stakeholders. Build a security maturity model to measure success.

Additional Tips To Improve Your Assessment Execution

To get the most out of your security assessment, ensure you have clear and concise documentation throughout the process. Always conduct such assessments objectively, using an unbiased approach. If feasible, leverage experts, tools, technology and automation (beyond using just spreadsheets) for data analysis, reporting and communication. There are a number of GRC ( governance, risk and compliance ) tools available in the market.

Finally, to champion compliance, you need to foster a culture of compliance. Investing in employee training, boosting employee communications, building clear and transparent policies and procedures, increasing involvement and participation from leadership, and promoting good behaviors across all levels of the business are ways that organizations can improve their compliance culture.

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risk management for business plan

Navigating Prosperity: Key Components Of A Strategic Wealth Management Plan

Financial planning is the cornerstone of achieving long-term financial goals. It’s a roadmap that guides individuals towards financial security and the fulfilment of their aspirations.  While managing day-to-day finances is crucial, wealth management takes a broader approach. It’s a comprehensive strategy encompassing financial planning, investment management, and risk mitigation, all tailored to help individuals build, preserve, and distribute their wealth.  Financial advisors, with their expertise and experience, play a vital role in crafting and implementing a strategic wealth management plan.

Understanding Your Financial Landscape

One key component of a satisfactory wealth management plan lies in personal analysis. Here, we shall focus on an illustration of what your financial goals, either short-term or long-term are. Whether your goal is how you envision your retirement, education for your children, or opening a business of your own, having that particular vision in mind is important. Defining your goals represents the beginning of the process and the step that comes next is calculating your current financial situation. 

This comprises calculating your net worth, trimming off the money you borrowed here and there, and adding the value of what you own as assets, like stocks and property investment. Planners in wealth structuring are the people who must be involved in assisting you through all the vital steps and creating the real picture of your financial starting point. If knowing where you stand in terms of finance, there are chances of making smart and productive decisions to meet your financial objectives. This understanding of self-acts is a fundamental component in the formulation of a customised wealth management plan that draws inspiration from your aims and objectives.

Building the Foundation: Risk Management Strategies

Risk management as a basic foundation of wealth management is the fundamental factor. Prices in the financial markets are unpredictable, thus the general financial security of the investor can be dramatically affected by unexpected circumstances. Knowing the various forms of risks such as market volatility, inflation and lifespan risks by being careful is the main task of retirement planning. Wealth managers’ advisors create an individual risk profile and portfolio with different risk exposures for you and recommend proper measures to minimise this risk. Diversification plays a vital role as a relatively safe tool of the risk management process. This is because spreading your investments across the different asset classes helps to minimise the effect of any single market downturn. More importantly, insurance policies play the role of relieving adverse effects that might have been brought by critical illness or disability.

Investment Strategies for Growth

Investment strategies are an essential tool for dynamic wealth creation and growth, they offer the thrust needed to propel wealth generation. The asset allocation process forms the core of a balanced investment portfolio. Asset classes (e.g., equities, bonds, cash) are chosen so that their returns can be distributed minimising the downside risk of an investment portfolio. This serving as an umbrella term refers to a set of asset classes, namely stocks, bonds, equities, and other diversified investments which are each risk-return generators. On one hand, stocks promise greater yield, however, they are at the same time also riskier and laden with volatility. Compared with bonds, though, their returns are often lower, yet they are deemed to be safer.

Financial advisors use their knowledge in this regard to appraise the client’s risk tolerance, timeframe investment and financial objectives that can lead them to choose the best asset allocation strategy. Advisors are successful at differentiating participants’ risk profiles via a closely designed portfolio that is individual-oriented. This reduces the risk while maximising profit. On top of that, they will familiarise you with various investment tools, for instance, mutual funds and ETFs which enable clients to have their money professionally managed and hold a diversified portfolio. By means of diligent asset allocation and proceeding with the selection of investment options, people can aim for their wealth-building purpose with solid conviction and clarity.

Tax Planning for Optimised Returns

Taxes are of paramount importance, as they can make a real difference to what you accumulate during your lifetime. Finally, a skilful financial advisor is going to be able to counsel about tax-favourable investment options like the IRAs and 401k’s that exist, which are good on contributions and even gains. Being explicit about taxes can help you build purposeful investments and also keep your tax liabilities to a minimum. Creating a tax-efficient wealth management strategy would probably give much better results over time.

Estate Planning: Preserving Your Legacy

Estate planning is inseparable from asset management. It is tools that you use to preserve the legacy you have already created and fulfil the dreams you have left undone. Above all, for those people who have families or complicated finances establishment of an estate plan is discriminatory. Wills and trusts is a primary area of estate planning. A `will` is a basic document that spells out your vision and direction on how your estate ought to be apportioned among your beneficiaries. Besides these benefits, trusts also have the potential for further advantages, such as tax minimisation and estate addition. In concert with the advice of financial advisors and estate planning attorneys, individuals can make a strong estate plan that takes their American Dream into mind and abstains them from worrying about their loved ones.

Retirement Planning: Securing Your Future

Enjoying a satisfying post-career life can be a difficult task in modern times. Financial advisors are in a position to guide you in building a stable retirement program by looking at income sources for retirement such as Social Security, possible pensions and your personal savings. They may advise on methods of increasing your retirement savings, such as specific catch-up contributions and perhaps exploring the possibility of scaling down your lifestyle to make it more manageable as you approach retirement age. Careful planning and management of retirement assets will give an assurance for worry-free living in one’s golden years through your retirement days.

A wealth management planner provides a roadmap for navigating your financial journey. It encompasses a range of strategies, including risk management, investment planning, tax optimisation, estate planning, and retirement planning. Working with a qualified financial advisor, especially financial advisors in Brisbane , can be invaluable in this process. Their expertise and guidance can help you make informed financial decisions, build a diversified portfolio, and achieve your long-term goals. Ultimately, wealth management is about taking control of your financial future and achieving financial freedom. By taking the first step towards creating a strategic plan with the assistance of professionals from lifelong wealth, such as wealth management planners from https://lifelongwealth.com.au/ , you can unlock your financial potential and build a secure future for yourself and your loved ones.

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COMMENTS

  1. How to Make a Risk Management Plan (Template Included)

    The steps to make a risk management plan are outlined below. 1. Risk Identification. Risk identification occurs at the beginning of the project planning phase, as well as throughout the project life cycle. While many risks are considered "known risks," others might require additional research to discover.

  2. Creating a Risk Management Plan for Your Business

    Creating a risk management plan can seem daunting, but it's important to have one in place to help protect your business from risks. Here are the basic steps you need to take to create a risk management plan: Step 1: Develop a solid risk culture. An essential component of any successful risk management plan is the establishment of strong risk ...

  3. What is business risk?

    Risk controls are measures taken to identify, manage, and eliminate threats. Companies can create these controls through a range of risk management strategies and exercises. Once a risk is identified and analyzed, risk controls can be designed to reduce the potential consequences. Eliminating a risk—always the preferable solution—is one ...

  4. What Is Risk Management & Why Is It Important?

    4 Reasons Why Risk Management Is Important. 1. Protects Organization's Reputation. In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation. "Franchise risk is a concern for all businesses," Simons says in Strategy Execution. "However, it's especially pressing for ...

  5. Risk Management 101: Process, Examples, Strategies

    What is the business's risk tolerance or risk appetite - that is, how much risk is the company willing to take on? ... An effective risk management plan has buy-in from leadership and key stakeholders; applies the risk management steps; has good documentation; and is actionable. Buy-in from management often determines whether a risk ...

  6. How To Create A Risk Management Plan + Template & Examples

    1. Prepare supporting documentation. You'll want to review existing project management documentation to help you craft your risk management plan. This documentation includes: Project Charter: among other things, this document establishes the project objectives, the project sponsor, and you as the project manager.

  7. How To Create an Effective Risk Management Plan

    Assign deadlines: Assign deadlines to each task in the plan to keep everyone on track and focused. Create a communication plan: Make sure to have a plan to inform team members and stakeholders about the risks and how they are being addressed. 5. Monitor and review risks regularly.

  8. A holistic approach to risk management

    To change this picture, leadership must commit to building robust, effective risk management. The project is three-dimensional: 1) the risk operating model, consisting of the main risk management processes; 2) a governance and accountability structure around these processes, leading from the business up to the board level; and 3) best-practice crisis preparedness, including a well-articulated ...

  9. Risk Management Plan

    Here are eight steps to help you create a Risk Management Plan: 1. Set Objectives. The first step in creating a risk management plan is to set objectives. This means identifying the goals and expectations of your organization and setting realistic targets for reducing or mitigating risk while also optimizing resources.

  10. What is Risk Management?

    Risk management is the process of identifying, assessing and controlling financial, legal, strategic and security risks to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters ...

  11. Building and Implementing a Risk Management Plan

    OKR (Objectives and Key Results) Examples for CEOs. Published On: July 5, 2023 5.5 min read. "If you don't invest in risk management, it doesn't matter what business you're in, it's a risky business.". - Gary Cohn. Risk management has become increasingly important for businesses in the 2020s. You might have the best strategy and ...

  12. How to Build a Comprehensive Risk Management Plan

    Risk Avoidance: In some cases, the best way to mitigate a risk is to avoid it altogether. This may involve making changes to the project plan, such as choosing a different technology or methodology that reduces the risk's likelihood. 2. Risk Transfer: Sometimes, it's possible to transfer the risk to another party.

  13. How to Make a Project Risk Management Plan

    Download the Blank Project Risk Management Plan for Microsoft Word. Use this blank template to create your own project risk management plan. The template includes sections to ensure that your team covers all areas of risk management, such as risk identification, risk assessment, and risk mitigation.

  14. What Is A Risk Management Plan? 2024 Comprehensive Guide

    1. Risk Identification. 2. Risk Assessment. + More. Compare Top Risk Management Software Leaders. Comprehensive risk management planning means you and your team will be aware of potential risks within a given project. This way, you'll have ample time to reassess your risk exposure. Whether you're a business owner, project manager or risk ...

  15. Risk Management Plan Examples Created by Experts

    A Project Risk Management Plan is a plan of plans. It documents a plan for all the risk management activities in a project. It includes many things, not limited to: A list of risk management activities. Responsible persons for identifying, prioritizing, mitigating, and controlling risks; Time and budget allocated for risk management activities

  16. 14 Smart Ways To Manage Business Risk

    10. Make A Risk Management Plan. Apply standard project management and institute best practices for risk management. Make a risk management plan for your business by identifying potential risks ...

  17. What Is A Risk Management Plan?

    A risk management plan enables project managers to see ahead to potential risks and reduce their negative impact. A new project welcomes in new opportunities but also potential risks so a risk management plan is a must for risk project managers. In order to effectively manage the project and lead their project team to a successful outcome, they ...

  18. Incorporating Risk Management into Your Business Plan

    Risk management is the process of identifying, assessing, and prioritizing potential risks to a business and implementing strategies to mitigate or minimize those risks. It involves analyzing the likelihood and impact of various risks, such as financial, operational, or reputational risks, and developing plans to address them.

  19. Identifying and Managing Business Risks

    To manage building risk, and the risk to employees, it is important that organizations do the following: Make sure all employees know the exact street address of the building to give to a 911 ...

  20. Free Risk Management Plan Templates

    Project Risk Management Plan Template. This template allows you to create a project risk management plan for Excel, which may be helpful for adding any numerical data or calculations. You include typical sections in the template, such as risk identification, analysis and monitoring, roles and responsibilities, and a risk register.

  21. Prepare a risk management plan

    Assign responsibility for tasks. 5. Develop contingency plans. 6. Communicate the plan and train your staff. 7. Monitor for new risks. A risk management plan can help minimise the impact of risks that could weaken your cash flow or damage your brand. It will also help create a culture of sensible risk awareness and management in your business.

  22. Risk Management Process: A Guide to Business Plan Risk Analysis

    A business risk assessment matrix, sometimes called a probability and impact matrix, is a tool you can use to assess and prioritize different types of risks based on their likelihood (probability) and potential damage (impact). Here's a step-by-step process to create one: Step 1: Begin by listing out your risks.

  23. Free Risk Management Plan Template [2023] • Asana

    4 steps to use your risk management plan template. Brainstorm which risks to add. Use collaborative software so everyone on your team can identify and add any potential risks that can negatively impact your project. Assess the probability and impact of each risk. The probability and impact of each risk combined represents the potential impact ...

  24. The Five Main Steps In A Compliance Risk Assessment Plan

    5. Review And Iterate. Once an action plan is implemented, it is important to measure and monitor its effectiveness. Conduct the compliance assessment periodically and update the remediation ...

  25. Navigating Prosperity: Key Components Of A Strategic Wealth Management Plan

    This understanding of self-acts is a fundamental component in the formulation of a customised wealth management plan that draws inspiration from your aims and objectives. Building the Foundation: Risk Management Strategies. Risk management as a basic foundation of wealth management is the fundamental factor.