• by Vikram Gajjala

Risk Management Practices in ITL 4 Environments

Successfully handling risk is one of the most integral factors that allow a firm to prosper. Risk manifests itself both in product and service delivery as financial risk operational risk, among other forms of risk. Risk pervasiveness makes risk management a necessary practice and regulatory requirement in every firm that wishes to thrive in the long run.

Therefore, managing risk should be viewed as a continuous process that all firms should partake in to co-create value and improve their service value system (SVS).

What Are the Best Practices Involved in Handling Risk?

• Risk avoidance

It entails preventing risk by not engaging in the risky activity altogether. Risk avoidance is not always possible, especially in a situation where a risk event is natural and, therefore, beyond your control.
 

• Risk modification and reduction

This practice involves identifying and implementing controls that effectively reduce the impact of risk. A firm adopts mitigation measures that prioritize minimizing existing risk.
 

• Risk sharing

It involves reducing risk bypassing some of this risk to a third party. Risk-sharing helps to minimize potential damage.
 

• Risk-retention and acceptance

Risk-retention and acceptance entail deliberately accepting the existing risk since it is below the threshold considered dangerous.

Apart from these best practices, there are crucial risk management sub-practices that improve the efficacy of risk management. These sub practices include:

1. Risk Management Support

The risk management support sub-practice outlines a firm's risk management framework. It is the framework that handles how the firm effectively handles risk. Effective risk management support requires a firm to identify and assess existing risks that could cause losses or harm its ability to achieve its objectives, establish the risk levels it plans to allow, and identify the different roles that drive the risk management process.

2. Business Impact & Risk Analysis

The business impact and risk analysis sub-practice estimate the business impact that results from the realization of risks. Here, the likelihood that a risk will occur and the importance of these risks is established. A risk can either be high risk, medium risk, and low risk. Firms have the chance to develop the appropriate responses to handle existing risks. The business impact and risk analysis sub-practice give rise to the risk register or risk log that outlines all the risks that have been identified and the necessary response measures.
 

3. Assessment Of Required Risk Mitigation

This sub-practice involves determining the risk response strategies and the risk owners. The risk owner in this context refers to the person in charge of coming up with suitable countermeasures to existing risks. Some of these countermeasures include:

• Sharing benefit, responsibility, or threat of a particular risk with another party.
• Exploiting a circumstance to create an opportunity.
• Enhancing or increasing the capacity of a product or the IT service being offered.
• Escalating refers to entrusting an existing risk to another party that can utilize the opportunity better.

4. Risk Monitoring

This sub-practice entails being alert to existing risks and monitoring the progress of the implemented risk responses. Risk monitoring involves developing a risk mitigation measure that can effectively cancel out the impact of an existing risk. In addition, a firm may adjust its risk responses if the impact is bigger or smaller than the mitigation measure they had earlier put in place.

Risk Management Needs Firms to Expect the Unexpected! 

The best example of a recent event that caught every firm by surprise is the outbreak of the Coronavirus pandemic. It showed us how crucial it is to put effective risk mitigation measures in place. Digital technology has been an essential tool that has helped organizations devise highly-functional risk management strategies.

Technology has made firms more flexible and quicker in adapting to, anticipating, and measuring risk. In addition, the agile practices that firms have put in place to build lasting resilience allow these firms to reduce the impact and potential damage of risk events.

How Can Firms Master Proper Risk Management To Combat Future Risk Events?

More firms are advised to conduct their activities under the full knowledge of the "VUCA" framework in ITIL 4 risk management guidance. VUCA is a well-known acronym that stands for Volatility, Uncertainty, Complexity, and Ambiguity that exist in a business environment. Being aware of the "VUCA" phenomenon helps firms prepare for any potential risk event. They can act more decisively to support any internal changes and adapt to any disruptions that may arise from the external environment. Here, firms see no problem quickly modifying their operating models to achieve stronger organizational agility and resilience.

Final Take Away

The outbreak and subsequent impact the Coronavirus pandemic had on the globe proved the importance of having well-crafted risk management practices. Firms need to recognize that digital transformation and emerging technological trends will be integral in devising effective risk management practices. Here, firms will be able to anticipate, gauge, and effectively respond to the risk events with the best risk mitigation measures. As a result, they will not be caught off-guard and poorly-prepared in trying to combat the harsh outcomes of risk events. Follow the recommended best practices we have shared above to avert potential disaster.