Risk management is a critical tool that helps companies and projects to see and address potential issues before they occur. It uses a structured approach to identify and examine a potential issue from the perspective of how likely they are to occur (likelihood), how big the problem will be if it does occur (consequence). This information is then used to undertake appropriately scaled actions to minimize the chance it will occur and the damage if it does occur. The bigger the potential problem, the more emphasis placed on avoiding it and/or minimizing its impact if it does occur.
Large companies rely on risk management to provide the framework to analyze a risk and take steps to make it less likely to occur and minimize damage if it does occur. They face so many risks that it is critical they analyze them and focus on the ones with the potential to cause them the biggest issues. They also rely on risk management to develop a corporate culture where staff consider likelihood and consequence for most of the tasks they undertake rather than just blindly doing what believe they were told to do. This approach to work is good for the company – having employees thinking of what can go wrong and how to avoid it reduces problems. This culture is even more important in Small to Medium-sized companies and projects (SMs).
Addressing risks helps SMs increase profit and improve financial stability – which is why risk management is a required practice in ISO 9001 and various other management and contract frameworks. Risk management is critical for SMs since they often to not have the depth and history needed to absorb major cash and reputational losses and in projects, anything that delays completion or increases the cost of the project typically results in exceeding the project budget.
SMS can easily implement risk management. Simply identify past issues and, at a high level, where they occurred. Then look forward and think of other issues that may come up. For example, there may have been issues with suppliers in the past and, for upcoming work, it may be critical that those issues do not recur. A quick risk forecasting meeting prior to reaching out to suppliers for bids and again prior to selecting a supplier may result in minimizing likelihood and consequence of supplier issues (risks). In the meeting, the team looks at what aspects of supply are critical to the company to see where the focus should be. Factors such as supplier on-time delivery, cost, and/or quality may be critical to success. Once critical potential issues are identified, do some mitigation planning to reduce each risk’s likelihood and consequence. The goal of the exercise is to look into the future, see what can go wrong, identify which possible issues would have the biggest impact, and mitigate them. It is a very beneficial bit of time spent.
In a project, start by identifying issues that have come up in similar projects. Key phases in a project such as pre-biding are often subject to a risk assessment to avoid under or over bidding based on possible risks. Supplier and sub-contractor selection is another activity where risk management can stop problems from occurring and reduce their impact if they do occur. Mitigation plans may be as simple as an additional clause in a contract (to reduce the likelihood of the issue occurring) and/or identifying suitable back-up suppliers/subcontractors (to reduce the consequence if it does occur).
SMs look at key operational risks throughout the entire organization or project and often assess their impact from four different perspectives; Health, Safety, and Environment (HSE), Cost, Quality, and Corporate. In many cases, a risk impacts more than one area, so there is some overlap. For example, there may be an environmental incident that impacts an SM in three different areas – SHE impact (contravening an operating environmental permit), cost impact (clean up and fines), and damage to the corporate reputation (news or social media attention). Using risk management, steps are identified and taken to reduce the likelihood of it occurring and to reduce the impact in each of the three areas if it does occur. Failing to mitigate an environmental risk can have a major impact on a company or project.
The biggest issue facing SMs is keeping track of the information, plans, and progress related to each different risk. Larger companies and projects typically have dedicated personnel supported by specialized software or spreadsheets that they use to manage risks. In smaller companies this is not feasible. This is where TRM Advantage comes in – it is the specialized app needed to keep track of information, plans, and progress and it enables smaller organizations to obtain the same benefits from risk management at a fraction of the cost. It operates on desktops, laptops, and is fully mobile friendly so it can be used anywhere there is cellular phone service.
SMs can generate real bottom-line benefit by implementing risk management. The easiest way to make money is to stop wasting it on issues that could have been avoided. Risk management is a tool that helps stop the waste. It is the stitch in time that saves nine…. and implementing it couldn’t be easier. Using TRM Advantage to support your organization will help your risk management program become a success.