Creating the Perfect Risk Management Plan

Risk management requires thoughtful and deliberate planning. What are the most significant risks facing your business? How do you plan to mitigate them? How will you know if your mitigation strategy is working? 

The risks you need to consider depend on the nature of your goals. Every organization faces risks that change over time, especially strategic goals change or switch direction. 

While there are always opportunities to expand and grow, rushing headfirst into a project or initiative without considering the risks is foolish. It’s not just the risks themselves that can harm your organization. The failure to effectively identify and manage them can amplify their impact. 

Implementing a risk-based business approach lays the groundwork for success. Identifying the areas of greatest risk points your organization in the right direction. Whether refreshing stale branding or offering a new product or service, your organization needs a risk management plan. 

Let’s define a risk management plan before jumping into what it should include.

Table of Contents

What is a risk management plan?
What are the steps in risk management planning?

• Risk identification
• Risk analysis and assessment
• Risk response and mitigation
• *What are the different types of risk controls?
• Risk monitoring
• Risk reporting

Risk management plan example
Enterprise risk management and risk management planning
The tools that will help you create the best risk management plans

What is a risk management plan?

A risk management plan is a strategic framework used by organizations in identifying, assessing, mitigating, and monitoring risks.  At financial institutions, it’s more commonly called a risk management program. Are you undertaking a new project? What are the financial risks, legal liabilities, compliance concerns, and other potential issues you must address?

Risk management and a risk management plan, while closely related, are distinct concepts:

Risk Management: Risk management is the ongoing process of identifying, assessing, mitigating, and monitoring risks. It's a continuous, dynamic approach that evolves as new risks emerge and existing risks change. Risk management is implemented to protect and create value for stakeholders, ensuring that the organization can effectively achieve its objectives while navigating the uncertainties of its environment.

Risk Management Plan: A risk management plan is a document or framework that outlines how risk management will be implemented across the organization. It details the strategies and processes for managing risks, including identification, analysis, response strategies, and monitoring mechanisms. The risk management plan is a component of the broader risk management process, serving as a roadmap for implementing effective risk management practices. Common methodologies include enterprise risk management (ERM), integrated risk management (IRM), or governance, risk and compliance (GRC). 

A risk management plan should reflect the size, complexity, strategic growth plans, internal core competencies, resources, and the board and executive level support of the organization.

An effective risk management plan uncovers the hurdles businesses face in launching a new initiative or expanding an established activity. For example, your organization might want to migrate to new software. What are the risks involved? They could be financial. What’s the likelihood that you’ll need to jettison this project entirely? What additional costs might you incur? Will you need to involve outside IT consultants? How much can you stretch your budget for unanticipated expenses?

Strategic risk also needs to be assessed in planning. Strategic risks are the long-term risks organizations face, which are challenging to plan for but critical to your success. Does the software you implement accommodate future growth plans? Will it expand alongside your organization? 

The main goal of risk management planning is to have a strategy for understanding the potential for adverse incomes and the effectiveness of plans to mitigate impediments to success. By forecasting potential issues, whether these are financial, operational, regulatory, or technological, organizations can proactively address challenges that might otherwise derail their strategic goals. 

A risk management plan shouldn’t be confused with a risk assessment. A risk assessment is the process used to identify, evaluate, and estimate the levels of risk involved in a situation or an identifiable threat. It involves determining the probability and impact of adverse events. The goal of a risk assessment is to provide decision-makers with the information needed to understand factors that can negatively influence operations and outcomes, and to make informed decisions about whether risks need to be treated and how. 

In short, risk management is the overarching discipline or activity, risk assessments focus on identifying and analyzing risks, and a risk management plan outlines how those risks are managed across the organization.

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What are the steps in risk management planning?

Risk assessment planning includes outlining the approach to risk assessments. Commonly, risk assessments are carried out through a five-step life cycle.

1. Risk identification

Identifying risks is the first step in accounting for any roadblocks. You can’t know what risks to include until they’re defined. Organizations must pay special attention to high-risk projects or activities, such as: 

• Infrastructure projects that have a sizable initial investment 
• Technological changes that may run into issues of integration and compatibility 
• Expanding into new and unfamiliar markets 
• Transforming business models, strategies, or tactics 

There are numerous other examples. The important thing is that organizations spend time identifying all project risks, especially those that are not immediately obvious.

2. Risk analysis and assessment

With this step, organizations first assess the probability and impact of a risk. Companies should prioritize risks with more severe consequences and a higher likelihood of occurrence.  

Related: Risk Assessments 101: The Role of Probability and Impact in Measuring Risk 

Organizations can then decide whether the risks of undertaking a new project or initiative are acceptable. This decision should be informed by an organization’s risk appetite, defined as the level of risk an organization is prepared and willing to accept. 

Part of a risk management plan is having a framework for measuring inherent risk (the risk of an activity if an organization makes no attempt to control risk) and residual risk (the risk of an activity after accounting for mitigating controls). Once an organization has decided how it wants to measure risk, it can develop risk management plan templates to complete risk assessments.

The above framework functions as a risk management plan template for measuring inherent risk by assessing the impact (ranging from catastrophic to minor) and the likelihood (ranging from rare to nearly certain) of an event coming to pass. Many organizations, from NASA to private firms, use risk templates or matrices to determine their level of exposure and risk from certain events.

3. Risk response and mitigation

Organizations assess their most significant risks in this step and create plans to alleviate them using specific controls. 

Risk controls are intended to lessen inherent risk. For example, the impact of a cyber breach on most companies without any controls would be catastrophic or major. You can’t change the impact of a cyber breach, but you can put controls into place (penetration testing, software patches, running regular system updates) to make it less likely to occur. 

On the flip side, a risk may be likely but has an insignificant impact. If custodial services failed to clean your offices over the weekend, this would be an inconvenience, but you don’t need strong risk controls to prevent it from occurring. Worse case, you contract out to a new cleaning company if performance doesn’t improve.

*What are the different types of risk controls?

Your risk management plan should outline the Internal Control Framework. The control framework would include the classification of controls, among other aspects. Control types include: 

Preventative controls: These are the controls you put into place to prevent an event from happening. 

Detective controls: These controls might be viewed as damage control. After a risk event, you must detect it quickly to reduce its impact on your organization. 

Corrective controls: These are designed to resolve a risk event following its identification by preventative and detective controls. 

Related: Hate Talking About Risk Management Controls? You’re Not Alone. 

Let’s delve deeper into detective and corrective controls by discussing risk monitoring, an integral part of your risk management planning. 

4. Risk monitoring

Continuous risk monitoring is a critically important aspect of every risk management plan. If you’re engaged in a new project, you likely have a project manager overseeing each step of the process. This individual must collect key metrics (including risk indicators and key performance indicators), conduct tests, and identify events that require remediation. Ongoing monitoring also allows organizations to ensure their risk controls are working as anticipated and recognize instances when their risk exposure has changed. It’s an essential part of an organization’s risk mitigation strategy. 

The controls implemented before undertaking a new project or initiative give organizations a blueprint of what to monitor. How quickly do you detect problems that arise during a project? Once discovered, how will you resolve these risks so your project can progress?

5. Risk reporting

The information gathered throughout the execution of the risk management plan only has value when an organization acts on it. A risk management plan should outline the intent of the risk "work" (i.e., to identify and mitigate the most significant risks), and reporting should speak to this goal. 

For example, if the plan says that the intent of control monitoring is to address gaps in resources and how those gaps impact strategic growth, reporting should communicate the findings as they relate to those goals. That may include current costs, achievement of pre-determined KPIs, the recognition of risk, or loss or gains. 

Project managers need to report the risks of an activity to other business units and key stakeholders, up to and including senior management and the board. Articulating the risks associated with any new or ongoing project helps align it with your organization’s defined risk tolerance and invites stakeholders to support your plan – or make changes to support better outcomes. 

Risk reports should be easily interpreted and based on a participant’s understanding. For example, you don’t want to deliver a dense document about NIST frameworks and cybersecurity best practices to your board. 

While risk reporting is essential, project managers must tailor reports to their intended audience, highlighting the most important information.

Risk management plan example

A Risk Management Plan is the umbrella under which all risk disciplines fit. Vendor management is one of those disciplines. Now that we have a risk management plan definition and have identified the steps organizations should take in creating one, let’s look at an example of a risk management plan in execution.

Risk Management Plan – Onboarding a Vendor that Processes Customer Payments 

The risk management plan above includes a risk assessment that addresses: 

• Risk Category – The categorization of risk by type. 
• Risk Description – Stated as an if/then proposition. If X occurs, then you will face the following risks. 
• Probability and Impact – The probability of a risk occurring and its impact (see the Risk Management Plan Template above). 
• Risk Impact Score: Probability * Impact 
• Timing of the Risk – When will this risk be most prevalent? 
• Risk Trigger – What will trigger risk mitigation efforts?
• Mitigation Response – How will your organization respond to this risk? What business units are involved in mitigating it?

A risk management plan offers a more detailed view of companies' specific risks when undertaking a new project. Organizations should create documents that assign a numerical value to risk, as this allows them to implement more robust controls, determine what triggers justify a mitigation response, and spell out mitigation steps with more clarity.

Enterprise risk management and risk management planning

Risk management plans are integral to your organization’s enterprise risk management (ERM) strategy. ERM, or Integrated Risk Management (IRM), takes a holistic approach to assessing and mitigating risk. 

Breaking down business silos is critical for an organization to tackle risk successfully, and this can only be achieved through well-crafted risk management plans. The main goal of risk management planning is to identify, assess, mitigate, and monitor risk so that the organization can make informed business decisions that consider obstacles to success and how to overcome them. While risk often appears unknowable, this doesn’t mean it is unmanageable. 

Risk management planning gives organizations greater flexibility and adaptability when included in their IRM framework.

The tools that will help you create the best risk management plans

Organizations that rely on manual processes for developing risk management plans will be at a significant disadvantage compared to those that leverage technology. Project managers struggle to assess risk manually for the following reasons: 

• Emails and spreadsheets are not a reliable way to gather, evaluate, and share information about projects and initiatives 
• Encouraging participation from the relevant experts, business units and departments, and stakeholders is incredibly difficult without a centralized repository for information and one-click sharing 
• Building the correct risk assessments requires a model or framework 
• Holistic risk assessments need a systematic approach that takes months to develop (and even then, organizations often accidentally ignore critical risks) 
• Reporting digestible information to the right departments and stakeholders is not feasible without an automated system 

Technology solutions remove many of these hindrances in building risk management plans. With the right tools, organizations can: 

• Unify their risk assessment data so everyone in the organization is speaking the same language 
• Spot, assess, and monitor risks from one centralized dashboard for easier remediation 
• Rely on one standardized model or framework 
• Simplify the sharing of reports for each business unit and stakeholder 
• Customize risk assessments by project and activity 
• Monitor risks throughout the project’s lifecycle 
• Refer to a library of industry best practices, regulations, and laws for the creation of compliance and risk controls 
• Track incidents and outline the steps that need to be taken for remediation 
• Communicate the status of projects and risks with ready-made board reports 

Ready to create a top-notch risk management plan? Request a demo today from our risk management experts.