Risk Management: A Brief Overview

Risk management is identifying and controlling legal, financial, health, and strategic risks to an organization’s capital.

To appropriately manage such risks, you need to know how to evaluate risk and understand the tools to help you do that.

Principles of Risk Management

There are two primary principles of risk management. They are:

Good Evaluation of the Risk

Risk, by definition, is the probability of occurrence of a harmful event and the severity of that harm. The problem with risk evaluation is how can it be different depending on the current stakeholder.

That’s why the evaluation of risk should be based on scientific knowledge. This is especially important if the risk involves the health of a person.

The Appropriate Level of Effort

The amount of exerted effort to manage a certain risk should correspond to the level of risk. Risk assessments usually involve a considerable amount of formality and documentation, which could be justified should an individual’s health is involved.

However, too much effort exerted on managing a relatively insignificant risk is tedious, unnecessary, and should be avoided.

Examples of Tools Used for Risk Management

Many tools are used for risk management, here are some of the most common ones:


Think of a flowchart as a mind map. You’d be using lines and boxes to point out the steps or the path that a certain procedure would take based on the surrounding circumstances.

Flow charts are often used for administration and project management purposes, but they could be handy when you want to want to trace how a certain risk could affect the steps of your project.

Process Mapping

Process mapping models look very close to flowcharts. Sometimes they’re even used interchangeably.

They’re indeed similar, but unlike how generic the flowchart can be, a process map is much more detail-oriented. It also contains specific timelines to tell when certain steps will be achieved.

Check Sheets

A check sheet is a large, well-prepared table containing various data. The good thing about check sheets is how versatile they can be since you’re virtually assigning every slot as you see fit.

Check sheets are excellent risk management tools since you can easily display each procedure with its associated risk.

Cause and Effect Diagrams

Cause and effect diagrams utilize a certain goal represented by a horizontal line. Various diagonal lines that indicate different effects and risks would then intersect with that line.

This allows the reader to asses how will those effects alter the current goal.

Levels of Severity

There are four levels of severity in risk management:

Negligible (Low)

Negligible severities are hardly considered risks, and they’re usually accidental events. For example, minor injuries resulting from heavy lifting are negligible severities that won’t affect the final goal.


Moderate severity risks are usually accounted for. They might affect the timeline but won’t compromise the intended goal.

Minor monetary losses due to certain market events are a good example of moderate severity risks.

Critical (High)

High-severity risks aren’t only accounted for, but they could jeopardize the integrity of the whole project. These risks are often health-related hazards and may be the main reason behind shutting down a certain establishment.

Improper disposal of nuclear waste that severely affects the health and quality of life of the surrounding individuals is an example of such a high risk.


Catastrophic risks are usually unexpected because if they were planned for, the project wouldn’t have started, to begin with. They usually end up taking the lives of some people away.

For example, a faulty inspection of a plane’s engines before take-off might lead to an engine failure mid-flight, leading to a catastrophic result.

Final Words

Risk management involves gathering all the data you can find so you can reach your goal with minimum risks.

To do that, you need to use risk management tools and understand the risk severities to prevent unfavorable outcomes from happening.