A critical component of risk management plans are the monitoring systems. The definition of risk incorporates an unwanted or negative event for the organization. After completing the steps of identifying risks, their likelihood, and their negative outcome, organizations need to devise plans to manage and monitor potential risks.
Many organizations identify potential risks and develop plans to manage them, but fail to develop adequate systems for monitoring. Systems need to be in place to monitor and report developing risks in a timely and accurate manner that will allow management to take appropriate actions to reduce, eliminate, or mitigate their consequences. The establishment of a management indicator system that provides accurate, timely, and relevant information in a clear, easily understood manner is key to risk monitoring.
Let’s look at four essential components of effective risk monitoring systems.
1. Risk monitoring is a continuous process to systematically track and evaluate the performance of risk-handling actions against established metrics. It should also include results of periodic reassessments to evaluate both known and new risks. If necessary, managers should reexamine the risk-handling approaches for effectiveness while conducting assessments.
2. The information should be available in sufficient time for management to take corrective action. An effective monitoring effort provides information to show if handling actions are not working and which risks are on their way to becoming actual problems.
3. Management needs to identify specific indicators to be monitored and information to be collected, compiled, and reported. Usually, documentation procedures are developed as part of risk management planning. Specific procedures and details for risk reporting should be included in the risk management plans.
4. To ensure that significant risks are effectively monitored, handling actions (which include specific events, schedules, and “success” criteria) developed during previous risk management phases should be reflected in integrated program planning and scheduling. Identifying these handling actions and events in the context that they occur establishes a linkage between them and specific actions the organization is trying to accomplish, making it easier to determine the impact of actions on cost, schedule, and performance. The detailed information on risk-handling actions and events should be contained in various risk management documentation (both formal and informal). The use of an electronic on-line database that stores and permits retrieval of risk-related information is almost essential to effective risk monitoring.
Effective risk management plans require fully integrated monitoring systems that include systematic processes and specific actions for monitoring and handling risks. This allows the manager to take timely and effective actions to reduce, eliminate, or mitigate the consequences of the negative outcomes that risks represent.