caucasian man and caucasian woman looking at computer together

Risk Management Plan – Definition & How to Create a Risk Management Plan in 8 Steps

What is a risk management plan?

Risk management planning is identifying potential risks ahead of time, analyzing them, then taking the necessary steps to reduce or eliminate them.

What are the benefits of a risk management plan?

A Risk Management Plan (RMP) is a fundamental tool for any business, organization, or individual that wants to protect and preserve its resources.

A Risk Management Plan will help you anticipate potential risks, evaluate them, and create strategies to manage them. It is an essential part of any business plan, as it helps organizations identify areas of uncertainty and develop ways to reduce or prevent unfavorable outcomes. Risk management planning can also help organizations understand their exposures and develop strategies to ensure that they have the resources available when needed.

How to Create a Risk Management Plan

A risk management plan has four core components: identification, evaluation, treatment, and monitoring. But these components must be broken down further to create a risk management plan properly. 

Here are eight steps to help you create a Risk Management Plan: 

1. Set Objectives 

The first step in creating a risk management plan is to set objectives. This means identifying the goals and expectations of your organization and setting realistic targets for reducing or mitigating risk while also optimizing resources. 

2. Identify Risk Sources 

Once you've identified your objectives, it's crucial to identify all potential sources of risk that you may encounter. This can include anything from natural disasters to market volatility and operational risks. 

3. Analyze the Risk 

Once the risk sources have been identified, it's time to analyze each source of risk. This involves understanding the probability of occurrence and severity of impact for each risk source. 

4. Develop Risk Treatment Strategies  

After analyzing the sources of risk, it's time to develop strategies for how each source of risk should be treated. Risk treatment strategies include anything from avoidance to mitigation and risk transfer. 

5. Document Risk Management Plan  

Once you've identified objectives, identified sources of risk, analyzed each source of risk, and developed strategies for treating those risks, it's time to document your risk management plan. This should include all the steps outlined above and provide a detailed action plan for dealing with potential risks. 

6. Implement a Risk Management Plan  

Once your Risk Management Plan is documented, it's time to implement it. This involves putting into practice any strategies you developed for treating risks and ensuring that all your employees understand and follow the risk management plan. 

7. Monitor Risk  

Your Risk Management Plan is not something that should be set in stone. Monitoring risk continuously is essential to ensure it is practical and up to date. Business and organizational leaders should regularly review sources of risk, analyzing changes in the environment, and making any necessary updates to your Risk Management Plan. 

8. Evaluate Risk Management 

Finally, it's essential to evaluate your risk management plan regularly. This involves assessing the effectiveness of the risk management plan in reducing or eliminating risks while ensuring that resources are optimized.

Risk Management Best Practices to Keep in Mind

  • Create a work environment that emphasizes risk awareness
  • Create awareness among employees
  • Set guidelines for how to enforce risk management policies
  • Openly communicate risk policies on a regular basis
  • Evaluate and adapt

Frequently Asked Questions Related to Risk Management Plans

What are the four components of a risk management plan?

The four components of a risk management plan are risk identification, evaluation, treatment, and monitoring.

How often should Risk Management Plans be evaluated?

Risk management plans should be evaluated regularly to ensure they are up-to-date and effective. This can mean quarterly, semi-annually, or annually depending on your organization's needs.

What is a Risk Register?

A risk register is a document used to record identified risks and the strategies for managing them. It should include information such as the probability of occurrence, the severity of impact, and risk treatments.

What is the most important step in a risk management plan?

The most critical step in a risk management plan is to identify potential sources of risk. This involves understanding the probability of occurrence and impact severity for each risk source.

Who is responsible for risk management?

Risk Management is typically the responsibility of senior management. However, risk management can involve all levels of an organization, from top to bottom.

How can Allianz Trade help companies with risk management?

Allianz Trade can leverage our specialist knowledge in trade credit insurance, commercial third-party collections, receivables management outsourcing, and international collections to help your business steer clear of potentially risky trade agreements.