Risks are inherent ingredients of a project. If the risks are not managed effectively at the initial stage itself, it may lead to several issues later on including failure of projects, disputes, litigations, financial losses, reputation loss, etc. Therefore, the management of risk is one of the most important aspects of managing projects successfully. A risk management system helps the organizations assessing and managing risks effectively. Organizations should be capable of handling project risks effectively. For this, the risk management processes of the organization should be efficient and mature. There are several ways to evaluate the risk management capabilities of an organization. Risk Management Maturity Model is one of the framework developed to measure the risk management capabilities of an organization.
There are many levels in the risk management model starting from beginner to advanced or optimized. The risk management processes of an organization are evaluated and the organization is placed at the appropriate level of the Risk Management Maturity Model (RMMM). The level at RMMM is taken for guidance purpose and the organizations may use the outcome of RMMM analysis to improve the performance of their risk management processes. Characteristic of each level of the Risk Management Maturity Matrix is discussed below.
Maturity Levels of Risk Management Processes in Risk Management Maturity Model
Level 1: Beginner
When an organization realizes a need for risk management processes, then it is said to have moved from zero to level 1, i.e., beginner level. At this level the risk management processes are almost nonexistent or exist at individual level or at isolated places. Although, management realizes the importance of risk management processes, but they are not aligned with the core processes of the organization. The application of risk management processes is reactive instead of preventive. The overall environment of the organization does not support risk management processes and the application of these processes mostly depend on knowledge, will and competency of individual professionals handling different projects.
Level 2: Managed
At this level of Risk Management Maturity Level, the management establishes the risk management policies and try to implement risk management processes as per the established policies. The risk management processes are mainly the repetition of past actions rather than based on the established systems. At this level the risk management processes are not applied uniformly across the organization but at isolated projects or places.
Level 3: Defined
The risk management processes of the organization are understood, defined and described in standard procedures and methods at this level. The risk management processes are aligned with the core processes of the organization and a consistency is observed in the application of risk management processes. There is continuous improvement in the risk management processes of the organization over the time.
Level 4: Integrated
At this level of Risk Management Maturity Model, the risk management processes are integrated across all the functions of the organization. The organization uses quantitative methods to manage risk management processes.
Level 5: Optimized
This is the highest level of the Risk Management Maturity Model (RMMM). The risk management processes are continuously improved at this level. The commitment towards the risk management processes is seen at every level of organization. Risk management is considered as a strategic tool in the organization. The organizations at this level have matured risk management processes and they are able to handle project risks effectively. Due to their efficient risk management capabilities, these organizations are able to complete their projects timely and within the allocated budget. These organizations make profit from the projects and the clients are willing to assign more projects to these organizations due to their past performance.
Risk management is a key aspect of completing projects successfully. The risk management processes not merely for compliance purposes but they add value to the organization. The organizations should realize the importance of risk management and should be willing to invest money and time to achieve highest quality of their risk management processes. Risk Management Maturity Model is a tool for evaluation risk management processes of an organization. There are five levels of this model i.e., beginner, managed, defined, integrated and optimized. While at the beginner level, the risk management processes are almost nonexistent or exists at isolated places, at the optimized level, the risk management processes of the organization are fully matured. The intensity of risks decreases from beginner level to optimized level. This model should be used as a guiding tool to evaluate the position of an organization w.r.t. the Risk Management Maturity Matrix and actions should be taken to achieve and maintain the highest level, i.e., Optimized level of the matrix. The organizations, which understand the importance of the risk management are able to complete their projects timely and within allocated budget ant usually remain profitable. Such organizations, therefore always win good projects and they maintain their credibility among their clients.