A risk register is an essential tool for any profit-making business. A company’s success is defined by weighing the risks against growth opportunities, but risks don’t always connote negative results. However, without a proper risk management tool, the outcome of the business risk assessment can be detrimental to the company.
It’s hard to anticipate every risk event that can occur in a project, but with proper risk management tools, you will be well-equipped to respond before the risks translate to a real problem, side-tracking the whale project.
What is a Risk register?
A risk register is a software piece used in project management, enterprise risk management, financial risk management, and IT risk management to identify potential risks in an organization or project.
Generally, a risk register is in the form of a risk log, and the log can be a dashboard, form, or spreadsheet. The most common components of a risk register in every log include the following:
- The cost of cushioning each risk
- The potential impact, probability, and consequences for each occurring risk
- Identified risks associated with the business or project
- The risk rating (low, medium, or high) and risk priority
- Specific steps to mitigate each risk
- The title or name of the person responsible for managing specific risks
- A risk breakdown structure that allows you to identify the project risks for categorization
Most project-based companies heavily rely on risk management tools because managing risks is essential to delivering projects on time and under a budget. Therefore, a risk register is a conclusive tool for understanding and assessing business risks.
Why businesses need to create a risk register?
Identifying, analyzing, prioritizing, and mitigating risks is a core process of every successful risk management program. Most organizations have this process on repeat, generating data that threaten business operations. For this reason, every profit-making business should create a risk register to store, analyze, and prioritize the identified risks to be better prepared for future risks.
Although the most significant benefit of a risk register is enabling the project manager to manage potential risks strategically, a risk register can also help you to:
- Identify an emerging pattern during risk analysis
- Create a standard scale that’s relevant and uniform to a specific risk
- Boost your confidence in making better decisions since you have detailed risk information on where to spend and why
- Enforce accountability as risk owners understand their compliance and risk management activities
Create a risk register at the beginning of a new project to provide you with a foundation of a solid risk management plan based on data-driven decisions.
5 requirements for creating a risk register
Many online templates have different steps and components of a risk register, which is bound to cause confusion on which element is crucial. Below are five basic and necessary steps you need to take to create a risk register that will reflect information about a potential risk to your project or business.
1. Risk identification
Risk identification is considered a crucial step when creating a risk register since it will influence the outcome of the other steps. There are different risk identification methods, but the most recommended ones include risk analysis or risk management.
In this step, brainstorming with other team members, including shareholders, is advisable to exhaust all categories as each person is responsible for different areas.
2. Describe project risks
Once all risks are identified, provide a detailed brief to allow anyone to understand the crucial information associated with each risk. Vague descriptions may be complicated for your team members to determine whether the issue is a risk or not.
For example, writing ‘the weather’ doesn’t clearly describe the risks associated with the caption. Instead, writing ‘hurricane in Florida may delay shipping’ clarifies how the weather could hurt the business.
3. Evaluate the probability and impact of risks
You’ll need to estimate how each risk can impact your business to develop an efficient strategy to deal with them.
Deciding the possibility of risk depends on the risk management methodologies employed in the company. In this step, using qualitative or quantitative measurements will significantly impact your risk register.
4. Create a risk response plan
This step requires a team effort to decide how to respond to each identified, analyzed, and described risk. The responsive plan should be concise, clear, and thorough but not excessive.
The risk response plan provides the risk owner with an easy outline of mitigating the risk according to the plan.
5. Prioritize risks and assign owners
Not all threats pose the same risks in each project, so this step will allow you to evaluate each threat level to the business by combing risk analysis measurements (from step 3) to create the order of priority.
Now communicate their allocated risks for accountability and responsibility to the qualified team members.
