Risk management is a highly complicated field of study, of necessity dealing with numerous factors, probabilities and variables. As a result, defining even an individual risk may be a very difficult task, further complicated by the fact that risks may be measured in a wide variety of ‘units’ (such as monetary costs, time, reputation, etc.) and that it is hardly possible to define in what ways different risks influence the probability of each other and how their overall possibility should be calculated.
Risk management tools exist for the sole purpose of alleviating the task of planners by creating some system, illustrated by metrics, parameters, priorities and suchlike that allows them to make some sense of this vastly contradictory, fluctuating and ambiguous set of factors.
When selecting the right tool for a particular organization it is important to study the company’s risk analysis and management process, define what is important for it, what its goals are, and then ask oneself some questions concerning how well this or that tool correlates with the declared task. Does the company intend to carry out a separate risk analysis or to organize an ongoing risk management process? Can the tool in question provide all the information necessary for the company? Does it provide the necessary level of detail? Can it be aligned with other project management tools?
While there is hardly such a thing as a tool that would be universally ideal for any company, there are still requirements that any serious tool should meet. First of all, it should support the four basic stages of risk management.
Firstly, risk identification – meaning that it should help define probable risks and the way they relate to each other.
Secondly, the assessment of risk impact – meaning that it should provide estimates of probability of particular events happening and the severity of their impact.
Thirdly, risk prioritization – meaning the tool should help define which risks are more crucial and which are less, and grade them according to the degree of severity.
Fourthly, planning of risk mitigation and ongoing monitoring – meaning that the more severe risks should be analyzed for the ways of their mitigation, less severe ones – tracked lest they grow in importance.
A full-fledged risk management tool should incorporate all these stages to be truly effective. However, when choosing a tool, an organization should keep in mind that it has to be in accordance with the organization’s nature, size and degree of complexity. For a small company it may be enough to run a risk analysis from time to time. For a large multinational corporation dealing with innumerable variables influencing its activities, risk assessment, analysis and management should turn into an ongoing process integrated into the workings of the organization, for in this case we deal with a much more complex entity in which things can go wrong in innumerable different ways.
One, however, should remember that risk management matters irrespectively of the organization’s size. With the world steadily growing more complicated and volatile, no business is simple enough to ignore analyzing its possible weaknesses.