Risk management is vital for virtually all businesses, especially given the precarity of the current global economy. But according to research from Ropes and Gray, 69% of executives have expressed a lack of confidence that their current risk management practises will be sufficient to mitigate future risks.

With the right tools and techniques though, risk can be identified and analysed on a more granular, nuanced level. Doing so will allow for a more robust future-proofing process, helping leaders better understand their projects and organisational health.

In this article, we’re going to explore exactly what those tools and techniques are. First though, we need to understand the basic process of risk management.

The four phases of risk management

While most businesses have their own variations and ‘best practices’, the risk management process generally involves four distinct ‘phases’:

  1. Risk identification

    Wherein intelligence and critical thinking are used to pinpoint specific paint points and challenges, as well as identifying unknown factors that must be tracked and understood.

  2. Risk analysis

    Once risks have been identified, two broad approaches are taken to analyse and generate useful information about those risks: Quantitative analysis uses statistical and mathematical methods to analyse risk factors and create projections to help understand the levels of risk involved, while Qualitative analysis uses subjective measures and expertise to make decisions about what to focus attention on.

  3. Response measures

    Various actions are taken to avoid or mitigate key risks, including drawing up contingency plans and transferring risks onto third parties – i.e. insurers.

  4. Risk monitoring

    Once a project is up and running, it must be carefully overseen to ensure new risks don’t appear and existing risks aren’t exacerbated.

Now that we understand how the risk management process works, let’s look at how the identification and analysis stages can be improved using simple-but-effective techniques.

Tools and techniques for risk identification

Tools and techniques for risk analysis

Formulating a strategy

Of course, few businesses will use every one of these techniques. Instead, you must focus on formulating a strategy which helps you better understand your project; reduces the complexity of risks; and gives you maximum control over potential disruptions.

Here are three important factors to consider:

  1. Embrace diverse perspectives

    The greatest danger in the risk management process is the undetected bias; if a group of analysts share the same assumption or belief, they will never notice it in each other and potentially huge risks can be allowed to slip into the fray undetected.

    This is exactly what the Coronavirus pandemic has shown us: the possibility for systematic failures of risk management, largely based on institutionalised assumptions and ideas about what is and is not a credible threat.

    With growing complexity across the global economy and political instability, risks are only becoming more numerous and more difficult to detect. So embracing a risk management strategy which is as diverse as possible will help weed out dangerous assumptions and detect pre-existing blindspots.

  2. Combine techniques effectively

    Most organisations will benefit from numerous of the tools and techniques we’ve discussed, but the most effective way of using them is as supplements to each other.

    By focusing not on individual techniques but the ways they interact, time and resources can be more effectively used. Equally, potential weaknesses in particular approaches can be fixed and reinforced by other approaches.

    As with the team and perspective you instantiate, the actual techniques used should be as diverse and harmoniously combined as possible.

  3. Make use of technology

    Most risk management processes already involve using simple tech, like spreadsheet and number crunching systems. But there are a heap of exciting new applications which will radically alter the playing field.

    AI in particular offers a means of labour-efficient analysis and data gathering which is faster and more robust than anything humans could plausibly do. And the time-saving will allow the humans involved to focus on more creative, strategic factors.

    At Contingent, we use AI to provide realtime supplier information, which can be visualised and analysed to create a far richer map of the supply chain, ultimately allowing organisations to understand their risks in far greater and more reliable detail.