Types of Risk Management Tools

There is no business that does not have any risk. In fact, there is a direct relationship, in many cases, between risk and profitability. But some business risks are unrelated to the expected return. These are circumstances inherent to the operation and, therefore, there are ways to predict, prevent and avoid them.

This situation is even more acute in the current context, with markets increasingly dynamic, globalized and subject to internal and external economic crises. This scenario increases competitiveness between companies, decreasing the margin for errors and forcing companies to use different types of business strategies.

Therefore, managers must be increasingly aware of business risks, preventing the company from wasting its resources and having losses that harm its results.

In this context, it is essential to use tools to automate risk assessment that help to identify, analyze and manage risks efficiently. Despite their importance, there are still entrepreneurs who are unaware of the application and the results obtained with the risk management tools that help companies improve their management, making them more efficient and profitable. So, let us look at some of the different types of risk management tools available in the market and how they are used to manage and mitigate risks in different industries.

What are risk management tools and how important are they?

Risk management tools are methodologies and techniques used to assess risks in projects or in the internal processes of companies.

Through its application, managers obtain subsidies to support decision-making and adopt measures to avoid potential problems, reducing their impact on production, employees and equipment, among others.

Due to its importance, risk management was included in the revision of the ABNT ISO 9001 2015 standard. It started to establish a systematic approach to risk, called risk mentality, with the objective of making the organization proactive and not just reactive to problems.

Risk management allows the inclusion of prevention and the philosophy of continuous improvement in the organizational environment.

4 types of risk management tools

There are several basic risk management tools. The list shown here deals with the main methodologies that can be applied according to the needs of managers.

FMEA

FMEA (Failure Mode and Effective Analysis) is a risk management tool used to identify risks, their causes and propose the most appropriate solutions to correct failures.

It is a versatile tool, which can be used to evaluate problems in the production of products or processes, being called, in these cases, PFMEA (Process FMEA).

It works with three numerical indicators:

• Severity: this indicator shows how much the problem compromises the use of the product and the integrity of the people involved in its production or handling.

• Occurrence: indicator that measures the frequency at which the problem or failure can occur.

• Detection: shows the degree of difficulty in which the problem can be perceived.

These indicators receive scores and are used to calculate a fourth index, called RPN (Risk Priority Number), which indicates the degree of urgency in solving the failures.

This is one of the main characteristics of this risk management tool, the prioritization of failures to be resolved.

Preliminary Risk Analysis tools

This is another of the basic risk management tools. It is called Preliminary Risk Analysis because it is a technique applied in the initial phases of implementing new projects or in the development of new products and services.

Its main objective is to avoid occurrences that may hinder its execution.

Its application consists of filling in a table in which all the activities involved in the processes to be analyzed are listed, listing all possible risks related to each activity.

After identifying the risks, they must be correlated with their possible causes and consequences, stipulating the necessary measures for the prevention, correction or control of these risks.

What if

It is a very simple risk management tool to be applied. Basically, it consists of imagining all possible risk situations that may occur and what could cause each of these situations. However, for this methodology to be efficient, it is necessary to have a team that has deep knowledge of the flow of processes and subprocesses involved, as well as the inputs and outputs.

Thus, meetings are held with employees to gather as much information as possible about the project. This information, together with the team's experience, will be used to formulate several hypothetical questions, based on the question "What if?", Which is the translation of the tool's name, "what if".

The purpose of the questions is to imagine all the scenarios of problems that may occur throughout the project and the possible solutions for each situation. The application of the tool focuses on the implementation of preventive measures, without necessarily identifying the causes of the problems.

The 5 whys

This risk management tool aims to identify the root causes of problems, removing the most immediate and superficial responses. Its application is very simple, basically consisting of asking, successively, the reasons for the problem, using the answers to formulate the next question.

These are just some of the ways that risk managers make sure that all the risks affecting their business are identified and managed. Many of these tools are now available in cloud software solutions. These software solutions increase the efficiency of risk management by automating the processes that mitigate risks. This allows businesses to manage risks without significantly increasing the resources they spend on the risk management department of the organization. Cloud based risk solutions are also very easy to implement; since they operate on the cloud, they do not need any hardware procurement or installation.

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