Almost all businesses today involves certain degree of risk. Some of the risks that business owners face on a day-to-day basis includes changing trends, customer habits, or the appearance of fresh competitors.
Evaluate the Risks for Your Project
There are a number of things which could occur that are simply outside your control, things which could cause major delays when it comes to the completion of your project. Despite this, developing a risk evaluation and management system can allow you to fight against the unexpected. The reason for this is because it gives you the ability to analyze the risks and decide the best actions to take so that disruptions in your plan can be reduced.
One thing that makes risk evaluation plans so effective is that they give you the ability to come up with solutions that are cost effective. A solution does little good if it is too costly, and a risk managment plan can help you to deal with this in the right way. It is first important to understand the best manner in which to properly use the risk management tool.
In general, risk is defined as the extent of potential loss which is perceived. One thing that you have to keep in mind about risk is that different people have different views on the impact of any given risk, and what may be considered a small risk for one individual may be a large risk for another.
One simple formula that is used to measure any given risk is this:
Risk = The likelihood of event x The cost of the event.
This very simple formula is quite effective because it allows you to make comparisons between risks in a manner which is objective. This approach can be used in a formal way, particularly when it is used in conjunction with decision trees.
The first step in successful risk analysis is to take the time to identify any potential threats that you face. Threats can come in a bunch of different forms. The first type of threat is called human, and it includes such things as death, illness, or threats which come from organizations. But other threats must be considered as well.
Types of Risks that Projects Face
In addition to the human risks which were discussed in the last paragraph, the second type of threats that you will face are those which are collectively referred to as being operational. These type of risks will typically involve various disruptions which occur with either operations or products. It may often include the loss of critical products or processes, or even distribution failures.
Another type of failure that you will want to become familiar with a reputation failures. These types of failures usually involve a loss of key customers or employees, as well as damage which is done to the reputation of the organization. The second type of threat that companies face is procedural.
Every organization has procedures that it follows, and many of these procedures are designed to ensure that the company is operating efficiently. However, there are times when these procedures could fail. Typically, things which lead to procedural failure include accountability mistakes, fraud, and damage to the internal systems of the organization.
Project threats are those threats which are specifically related to the project. It includes such things as project costs spiraling out of control, or tasks which take too long, as well as a product or quality of service which is simply insufficient. Financial risk is anything which involves money or financial assets, including stocks interest, or unemployment.
Technical failures are a risk that must be considered as well. Advances in technology could pose a risk to the project, but technical failures are a danger as well. Political threats such as tax regimes, changes in government policy, or the influence of foreign countries could also pose serious risks to a project.
Taking the time to analyze the many threats you face is extremely important, and the reason for this is because it will allow you to locate the various risks that the organization may face. This is the first and arguably the most fundamental step in the risk management process.