The Importance of Assessing Probability
Developing a risk management plan is a process that many businesses go through. It starts with creating a comprehensive list of prospective threats and risks that may affect the company. Risk managers must consider all potential threats, including physical, legal, financial, human, intellectual and technology factors. The next step is equally important: businesses must assess the probability of each threat occurring. This will help them devote the appropriate resources to ensuring these threats are never realized. Risk managers should rank these threats on a scale from "very likely to occur" to "very little chance of occurrence." "In addition to employing the occurrence probability scale, it's important to evaluate the potential financial damage that could result from each risk in order to respond appropriately," explains Nevada Business. "If a risk is very likely to occur, but doesn't present a huge loss, it could be less threatening than a risk that has very little chance of occurring, but could devastate the company." Once probability has been decided, businesses must take the appropriate steps to mitigate losses. This could range from buying various insurance policies to modifying operational practices to ensure nothing goes wrong. Risk managers must always take a preventative stance on threats, as it's infinitely better to stop them in the first place than mitigating them after they occur. A threat can impact a company at any time. However, by developing a solid risk management program, organizations are better prepared to prevent them from happening. Risk professionals should make sure their initiatives take the probability of risk occurrence into account to maximize the effectiveness of their programs.