How to use risk identification within a risk management plan

By Indeed Editorial Team

Published 25 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The identification of risk is a crucial process for all organisations as each one of them face risks in their day-to-day operations, so it's important that they're fully aware of them. Identifying risks improves the safety and compliance of a business, maximises its efficiency and profitability and ensures its operations continue smoothly. If you're in charge of managing risks for a business, understanding this process can help you do so more effectively. In this article, we explain what risk identification is, list the types, explain the identification process, show techniques for identifying risks and review best practices for the process.

What is risk identification?

Risk identification is the process of identifying possible risks that could affect an organisation and prevent it from achieving its goals. These risks include any threats to the company, the way it operates and its workforce. Companies put in place detailed risk management plans to minimise the possibility of any threats occurring.

Identifying the risk is the first step in the overall risk management process. Risk management is not just about identifying risks. It involves evaluating, treating and monitoring those risks. It's a continuous process that constantly adapts and changes with the organisation.

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Types of risk assessment

Risk identification aims to describe potential events that could affect an organisation's ability to achieve its goals. These events could be internal or external and have various degrees of severity. There are many types of risk assessment involved in this process, such as the risk assessment of a project or programme and risk analysis to strengthen an investment decision. These assessments can help companies resolve issues with costs and define uncertainties. They can also help managers with the analysis of any alternatives.

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Risk identification and management process

Most risk management processes cover five essential steps. It's helpful to understand these processes to know how risk identification forms a part of a risk management plan. Here are the steps of the process:

1. Risk identification

This initial step investigates what events could affect an organisation's ability to operate and achieve its goal. Identification considers what, when, where, why and how these events could happen. For example, an organisation that relies on technology could identify a malware attack as a risk that might affect its ability to function. Once an organisation has identified a risk, it can create a plan to manage it.

2. Risk analysis

The next step in the process is to analyse the risk. During risk analysis, you may consider how likely the event is to occur and the potential outcome of each event. Using the previous example, an organisation might consider previous malware attacks, current statistics and consequences at this stage.

3. Risk evaluation

The next step is to rank the risks in terms of their magnitude. This involves understanding which risks are more likely to happen and which would have a greater impact on the organisation. The purpose of risk evaluation is to create a list of risks ranked in order of priority. Some risks might not require detailed mitigation strategies, while others might need constant attention.

4. Risk treatment

Once identification is complete, the organisation implements measures to prevent them from happening or to deal with them if they occur. Risk treatment, or risk response planning, involves putting together risk mitigation strategies, contingency plans and preventative care solutions. In the malware attack example, this step could include confirming adequate cyber security measures and backing up data effectively.

5. Risk monitoring

Risk management is an ongoing strategy that continually adapts and changes with the organisation. This means it's usually performed more than once. This is called risk monitoring. You can begin monitoring risk by implementing a risk management process that's continuously repeated, monitored and adjusted to ensure that the organisation considers all risks.

Related: How to become a risk manager and boost your career

Techniques for identifying risks

Risk identification is a broad term that covers a variety of strategies. How an organisation identifies risk depends on what type of organisation it is and how it operates. Here are three standard techniques you can use to recognise risks:

1. Brainstorming

The first and most common approach is to sit down and consider the probability of any unwanted events taking place. Brainstorming involves risk managers, other managers, some C-level staff and stakeholders evaluating the potential risks. The more risks the organisation can identify, the more thorough and effective the risk management plan becomes.

2. Asking employees

Rather than limiting the process of identification to upper-level management, it's helpful to include all employees. Upper-level management's understanding and perspective of risks could differ from regular employees'. In most cases, these employees are the people who face these risks daily, so they have a more thorough understanding of every risk scenario. Employees offer a valuable first-hand perspective that upper management may overlook.

3. Planning for the worst

Identification of risk involves anticipating and planning for the worst in every scenario. While managers want to remain positive and expect the best for the organisation, considering every outcome is vital in thorough risk recognition. As the organisation continues to operate and programmes progress, more information becomes available, and previously unknown risks appear. This makes identification an ongoing process, where the risk statement adjusts based on the latest information. Managers identify extra risks throughout a project's lifecycle, so identification of strategies is always required.

Best practices for risk identification

Identification can be a complex process that involves many different factors. Any identification process involves many unique considerations based on the organisation. Here are some best practices to consider when analysing risk:

Create a strong risk management culture

An important risk management best practice is to create a strong risk management culture within the organisation. It's essential that everyone involved in an organisation shares the same values, beliefs and attitudes to risk. Management plays a role in communicating the culture around risks from the top down.

Risk culture affects the overall perspective towards risk awareness. Management support is essential to having this risk awareness spread throughout the organisation. So, a best practice is to evaluate the organisation's risk culture and ensure upper management emphasises the importance of risk awareness.

Involve stakeholders

It's best to involve stakeholders during every step of the risk management process. Stakeholders can include managers, clients, employees, shareholders and anyone else that the risk management process could affect. Each of these individuals has different roles and responsibilities, and each can offer a unique perspective on the risk involved.

Getting stakeholders involved also provides a more holistic overview of risks. It's best practice for the organisation to encourage stakeholder engagement throughout the continuous identification process. Asking them about their concerns allows managers to gain a complete perspective on the different risks associated with the organisation.

Implement clear risk management policies

It's sensible for organisations to document their risk management policies. This involves a straightforward risk assessment strategy, clearly defined roles and responsibilities and a well-documented risk mitigation process. Properly documenting any relevant risk policies and communicating them to employees achieve effective results. Having a well-developed set of risk policies makes identifying potential risks easier. Making these risk policies available to all employees is also essential. This ensures everyone involved in the organisation is up to date with what constitutes risks and how to identify them.

Promote effective communication

Effective communication is necessary to use identification as part of an efficient risk management plan. Identification is not just about finding risks. It's about clearly communicating them across the organisation. Keeping everyone up to date with key risks is essential. This is because the aim of the identification process is to create risk awareness. Once an organisation has identified risks, effective communication networks convey details of them and their potential effects to everyone involved. When implementing an identification strategy, it's good practice for an organisation to understand what communication channels and systems can spread risk awareness.

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Use risk monitoring continuously

Performing an initial identification process is a start, but this won't reveal every risk associated with the organisation, it's a continuous cycle. The process involves both risk identification and risk monitoring. Once an organisation has identified the risks, it continually monitors them in case additional risks occur. This process ensures that risk mitigation efforts are effective and that there are no missed risks. Conditions and processes are constantly changing, and so can the identification process.

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