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What Does “Risk-Based Thinking” Mean?

What Does Risk-Based Thinking Mean

The ISO standards have long mentioned risks in various iterations. However, a newer version of these standards mentions risks more prominently. For example, the latest versions of ISO 9001 and 14001 state that organizations should use risk-based thinking when managing multiple processes through operations, planning, and performance evaluation. 

When we analyze what ISO means about risk-based thinking, it becomes clear that while risk-based isn’t exclusively speaking risk management, risk-based thinking can be incorporated into these processes by using various automated risk management tools. 

But before you go looking for what risk management tool to use, it’s important to understand risk-based thinking. In this article, we will discuss just that to make sure you are fully aware of this concept.

 

Risk-Based Thinking Definition

According to the 2015 version of ISO 9001, risk-based thinking is defined as “a systematic application of information, knowledge, and actions to address uncertainty and potential opportunity.” In other words, risk-based thinking is a proactive way of approaching problems or opportunities.

This thought process should be applied throughout the organization to make sound decisions. By using risk-based thinking, you can avoid potential problems or take advantage of opportunities that present themselves.

There are four main components to risk-based thinking:

 

  • Identification: identifying risks and opportunities
  • Analysis: analyzing risks and opportunities
  • Evaluation: evaluating risks and opportunities
  • Treatment: treating risks and opportunities

 

We will discuss each of these components in more detail below. 

 

Identifying Risks and Opportunities

The first step in risk-based thinking is to identify risks and opportunities. This can be done through various methods, such as brainstorming sessions, SWOT analysis, or process mapping.

Once you have identified the risks and opportunities, it is important to document them. This will help you keep track and ensure that everyone in the organization is aware of them.

Analyzing Risks and Opportunities

The next step is to analyze the risks and opportunities. This will help you understand the potential impact of each risk or opportunity. To do this, you will need to consider the following:

 

  • What could happen if the risk is realized?
  • What is the likelihood of the risk being realized?
  • If the opportunity is not taken advantage of, what could happen?
  • What are the consequences of the risk being realized?

 

Evaluating Risks and Opportunities

Once you have analyzed the risks and opportunities, it is time to evaluate them. This will help you determine what you need to prioritize and decide which ones need to be addressed first.

To do this, you will need to consider the following:

 

  • The potential impact of the risk or opportunity
  • The likelihood of the risk or opportunity being realized
  • The consequences of the risk or opportunity being realized
  • The costs of addressing the risk or opportunity

 

Treating Risks and Opportunities

The final step in risk-based thinking is to treat the risks and opportunities. This will involve implementing controls to mitigate the risks of taking advantage of the opportunities.

The control you implement will depend on the risk or opportunity being addressed. For example, if you are addressing a risk, you may implement controls to reduce the likelihood of the risk or reduce the impact if it is realized.

If you are taking advantage of an opportunity, you may need to put processes in place to ensure that the opportunity is realized.

 

Risk-Based Thinking Vs. Risk Management

Many experts define risk-based thinking as a watered-down version of risk management. Both concepts are similar, but there are some key differences.

Risk management is a more formalized process, and it is typically only used when there is a problem that needs to be addressed. On the other hand, risk-based thinking can be used proactively to avoid problems or take advantage of opportunities.

Risk management also typically focuses on negative risks or risks that could lead to undesirable outcomes. However, risk-based thinking can identify and take advantage of positive risks that could lead to desirable outcomes.

So, which is better? There is no right or wrong answer. It depends on the organization and the situation. In some cases, risk management may be the best approach. In other cases, risk-based thinking may be more appropriate.

It is important to remember that both risk management and risk-based thinking are tools that can be used to improve decision-making. They are not mutually exclusive, and they can be used together to achieve the best results.

 

Risks Vs. Uncertainty

One final point to consider is the difference between risks and uncertainty. Many people use these terms interchangeably, but they are not the same thing.

Risks are things that could happen, and their consequences are known. Uncertainty is when the outcome of an event is unknown.

For example, in a business, the risk of a product being delayed is known. The consequences are also known, such as loss of revenue or market share. Uncertainty would be if the product was delayed and the consequences were unknown.

Risk-based thinking can help reduce uncertainty by providing a framework for making decisions in an uncertain environment. It can also help identify and address risks before they lead to problems.

 

DataMyte Has the Technology to Mitigate Risks

Now that you know what risk-based thinking is all about, it’s time to shop for the best-automated risk management tools. While many different types of risks can occur in a manufacturing setting, DataMyte has the technology to mitigate them.

DataMyte’s Quality Management Software is designed to help organizations identify and address risks before they lead to problems. The software includes real-time data collection, SPC charts, and customizable reports. These features can help reduce the likelihood of problems occurring, and they can also help identify risks so that they can be addressed before they lead to problems.

DataMyte also offers a range of other software products that can be used to mitigate risks in a manufacturing setting. These products include ERP software, MES software, and barcode labeling software. By using DataMyte’s products, organizations can take a proactive approach to risk management and avoid problems before they occur.

Contact us today if you would like to learn more about how DataMyte’s products can help your organization. One of our experts will be happy to answer your questions and provide you with more information. You can also check out our official website to learn more about our amazing products.

 

Conclusion

By using risk-based thinking, organizations can make better decisions, avoid problems, and take advantage of opportunities. Implementing risk-based thinking is not always easy, but the benefits are worth the effort. By taking a proactive approach to risk management, you can avoid problems before they occur.

 

 

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