BPC, Articles and Glossary

Risk Management Software

Definition: Risk Management is the identification and evaluation of risks to an organisation - including risks to its existence, profits and reputation -  and the acceptance, elimination, controlling or mitigation of the risks and the effects of the risks.

What does risk management software do?

Assessing risks and opportunities within a business can have a big effect on the successful implementation of new strategies and completion of projects and individual tasks. It's often difficult to prioritise tasks to reduce risks to a minimum and increase opportunities. Risk management software is designed to help with this process. It provides visual aids to help sort low priority jobs from high priority ones and hence concentrate your efforts on the tasks that will produce the best results most quickly.

There are two main factors determining the importance of a particular risk:

Probability – the chance that a particular adverse circumstance will come about. Assessing the probability of a particular event is a good part of determining the overall risk.

Cost – the price you will have to pay if an adverse event occurs.

Balancing these two factors is the main way in which risk management software can help you assess your best course of action. If you have a risk which is very probable, but has only a low cost, it may not take as high a priority as a less likely occurrence which has a very high cost.

Risk Management can be a costly business. If you try and take account of all possible risks and allocate resources to remove them or mitigate against them, you’ll waste those resources if the risky events don't happen. The ideal management of risk is one which allocates as few resources as possible, while still reducing risks by the maximum amount.

There are four main ways of reducing risk:

Risk avoidance – don’t do something which might be risky. This is an obvious way to reduce risk, but it also reduces the possibility of gains.

Risk reduction – put measures in place to act against the risk. For example, install a burglar alarm to reduce the risk of robbery in a building.

Risk retention – accept the consequences of a particular risk. Normally only suitable for low-level risks, it can be more cost-effective than insuring against them. For example, accepting an excess charge on a typical car insurance.

Risk transfer – getting somebody else to take the risk. The most obvious example is taking out insurance, but you may also be able to arrange risk transfer by writing it into a contract with, for instance, a subcontractor.

Risk Management Software can help you make decisions on all four forms of risk management by showing you which risks are the most important and how likely they are to occur. By using techniques such as Monte Carlo analysis, you can also determine the likely cost of particular risk.