You can learn a great deal from an individual, a group, or even a whole organization, by how they respond to risk. Risk aversion is often the result of a history of painful losses, for example. Conversely, a brash and flippant attitude belies a lack of experience or a lack of experience with failures and setbacks at the least. 

Motorists who have never been in a car accident often drive less attentively, and entrepreneurs plan more carefully after a business gamble goes bust. 

While many risk factors are nested deeply in external loci of control, “we can’t control everything” is a poor excuse for willful negligence. 

That’s why, for businesses that see the wisdom in “better safe than sorry,” Enterprise Risk Management (ERM) is a critical component of their processes. And if your aim is to “measure twice; cut once,” there are few “measuring tapes” more valuable than an effective risk management software engineering tool. 

A Risk Management Crash Course

Risk, and the management thereof, is a topical rabbit hole of staggering depth and complexity. As a result, a comprehensive discussion is outside the scope of a semester-length course, let alone a single blog post. That said, an overview of risk management principles and practices will be necessary for anyone lacking that background if the software discussion is to bear any fruit.  

What Is Risk?

“Risk” is a term used broadly to refer to uncertainty and unpredictability in business outcomes. No investment or venture is a 100% guarantee—residual risk will always exist—and we refer to the probabilities of possible negative outcomes as risk. 

There are various risk factors, types, and sources, and they can be acute or chronic. For example, natural disasters, product failures, supply chain issues, political upheaval, PR incidents, and compliance violations—are all examples of risks.  

Historically, dealing with risk primarily meant “dodging bullets,” metaphorically speaking. In recent decades, though, the rise of media streaming and online shopping has proven that “taking a shot” can be just as critical a consideration. In risk-related discussions, we refer to these cases of failure to adapt or innovate as “opportunities” or “positive risks.”  

The COVID-19 pandemic was a business disruption few anticipated, but so too was the rapid shift away from physical media and cable television. Both types of risk devastated numerous organizations, and neither will be the last of their kind.  

How Is Risk Managed?

 In past eras, an overly cautious approach to risk had a tendency to slow business growth, but it wasn’t necessarily a death sentence in most cases. On the contrary, slow, steady growth was an acceptable success state for organizations that chose to be conservative in strategies. It wasn’t until disruptive innovations became regular occurrences that hedging bets became almost as risky as rolling the dice. 

 Where that leaves risk management is an uncertain middle ground, where failure can come from either flank. One thing is for sure, though, outcomes are easier to predict with larger samples of accurate, up-to-date information. In other words, the more you know, the better your decisions. 

Modern risk management is heavily dependent on this principle of perpetual information gathering. Cyber risk management and information security teams constantly survey their business landscape for potential threats, disruptions, opportunities, and unforeseen events.  

This risk identification process is followed, as it is in many data science projects, by analysis and categorization using risk assessment tools such as an internal audit. Risks are then prioritized based on probability, potential impact, and tractability. Following all analytics, strategies can then be determined and employed to account for these identified risks. 

Risk response action plans tend to fall into one of four categories: 

  • Avoidance (compliance in regulatory requirements helps remove potential risk factor)
  • Reduction (mitigating the risk by reducing impact, frequency, probability, etc.)
  • Sharing (transferring some or all of the risk liability, e.g., via insurance, vendors with third party risk, etc.)
  • Retention (accepting the residual risk as-is and incorporating remediation into the process) 

Evolving Enterprise Risk Management with Risk Management Software

With the basics covered, it’s time to move on to the core issue at hand: if risks are increasing in number, variety, and complexity, and the data required to manage it is similarly expanding, how can organizations scale efforts to match the need? 

Just as digital solutions have addressed similar demands in other verticals, it provides an answer. The situation is rapidly approaching a point of critical mass, where no effective solution will be possible without elements of automation.  

This is where Risk Management Software comes in.  

What Is Risk Management Software?

It's a broad software category that serves a broad industry. Not to be overly reductive, but put simply, risk management software is any application or digital tool designed to improve the efficiency and effectiveness of your risk management process. 

How you achieve safety varies by solution, but expect the tool to aid in things such as:

  • Collecting, storing, and organizing relevant data
  • Parsing and categorizing risk analysis profiles
  • Visually representing and sharing results from findings
  • Facilitating the execution of response strategies 

Don’t be surprised if that description sounds generic, as this software category includes everything from accounting platforms to cybersecurity tools to healthcare patient management systems.  

Many tech solutions you’re familiar with already serve some of these functions, just by the basic necessity of serving the needs of their target markets. A patient management tool, for example, would struggle to find its market without proper HIPPA implementation baked in. 

Some software, however, is designed for integrated risk management first and all other considerations second. Most of these can be identified by the way they label themselves on their websites and marketing collateral, usually, including the specific operational risk factors they target, such as the following:

  • Third-party risk management
  • Operational risk management
  • Quality management
  • Security risk management 

Other related terms might also be used in the brand’s copy and indicate the tool’s intended use case. For example, suppose their branding mentions terms along the lines of “audit,” “analysis,” “identification,” “mitigation,” or “liability,” especially when paired with the word “risk” itself. In that case, the software is likely in this category. 

Is Risk Management Software Necessary?

Answers regarding why you need risk management software will depend on the individual or organization asking it. For example, smaller businesses in industries with lower risk profiles may find manual processes sufficient for their needs. Not unlike how a young startup may find HR software or PM software unnecessary at their current growth stage.  

Larger organizations, those operating in heavily regulated industries, or any that thought their resilience to a past loss or disaster was insufficient to stand to benefit from the use of risk management software. 

 Ultimately, finding the right risk management solution is about tackling uncertainty. Such an objective becomes much easier when we use computers to handle the functions they do best and free up human capital to handle the tasks that require their expertise and wisdom. 

Hence, risk management software may fall under the “positive risk” label for an organization. 

Choosing a Risk Management Software

Much of the subject matter in this article is too expansive to cover thoroughly here. The same is true of vetting a risk management software solution without a more specific context. That said, finding a risk management application that meets your needs is not something that happens by accident, and as previously discussed, more information leads to better decisions.

What makes the best risk management software? That will depend on circumstances, needs, budgets, and so forth. There’s no universal solution, even in vendor risk management (RiskRecon’s specialty).

If you’re looking to manage vendor risk, a demo from RiskRecon, a Mastercard company, can help you decide if our risk management solution fits your use case. We offer customized options to ensure your business is as safe as possible.