7 Steps of Risk Management Process (RMF) with Example

Construction risk management is your key to finishing projects on time, within budget, and to a high standard. It's your game plan for handling the curveballs that construction always throws your way. However, despite extensive efforts of trying to mitigate risks, there are still instances that something would go awry. You ask yourself: where did I go wrong?

It's a good idea to review your risk management process. Check if you're following all the right steps and keeping detailed records. This can help you figure out where things might have gone wrong.

Let's break down the 7 risk management steps to help you keep things running smoothly, no matter what.

What is the Risk Management Process?

The risk management process is a systematic approach designed to manage uncertainty in construction and capital projects. By proactively identifying potential risks, assessing their impact, and developing strategies to address them, project teams can significantly improve their chances of success. This framework, known as the Project Risk Management Process or Risk Management Framework (RMF), helps ensure that risks are effectively controlled throughout the project lifecycle.

7 Steps of Risk Management Process

Step 1: Establish the Context

Establishing the context is the first and most critical step in the risk management process. This step involves defining the project's scope and objectives, understanding the internal and external environments, and identifying the stakeholders involved.

Key activities include:

• Defining Project Objectives: Clearly outline the project goals, deliverables, and success criteria. This ensures that everyone involved is on the same page and that risk management efforts are aligned with these objectives.
• Understanding Stakeholder Needs: Identify and analyze the expectations and concerns of stakeholders, including clients, contractors, and regulatory bodies. Understanding these needs helps set realistic goals and prepare for potential challenges.
• Assessing Internal and External Factors: Evaluate your organization’s structure, resources, and capabilities, as well as external factors such as regulatory requirements, market conditions, and environmental considerations. This comprehensive assessment helps identify areas where risks might arise.

Step 2: Risk Identification

Once the context is established, the next step is to identify potential risks that could impact the project. Risk identification involves systematically uncovering risks from various sources and documenting their characteristics.

Key activities include:

• Brainstorming Workshops: Engage project team members and stakeholders in discussions to identify possible risks. These collaborative sessions not only reveal additional risks that may have otherwise been overlooked but also facilitate discussion amongst the project team, ensuring greater understanding and transparency and promoting a more risk-aware culture.
• Expert Consultation and Involvement: Ongoing collaboration, participating in decision-making processes, providing insights, and contributing to the development of strategies, etc, all based on their previous experience & knowledge.
• Prompt Lists and Historical Data Review: Use predefined lists of common risks and their details and analyze risk data and lessons learned from similar past projects. This approach ensures all potential risks are identified, and recurring risks are flagged for closer attention from the project's outset, preventing issues from being addressed too late.
• SWOT Analysis: Conduct a SWOT analysis to evaluate the project's strengths, weaknesses, opportunities, and threats. This method not only helps in identifying internal and external risks but also encourages proactive thinking about how to leverage opportunities. Understanding both the positives and negatives allows the project team to develop a more balanced approach to risk management, focusing on maximizing opportunities while minimizing potential downsides.
• Risk Breakdown Structures: These hierarchical charts break down identified project risks, beginning with high-level categories and drilling down into more specific sub-level risks. This framework allows for the categorization and ranking of risks, making it easier for project managers to plan and mitigate their impacts effectively. By offering a comprehensive and organized view of potential risks, RBS enables project managers to allocate resources more appropriately and prepare for both positive and negative risk impacts.

Step 3: Risk Analysis

After identifying potential risks, the next step is to analyze them. Risk analysis in project management assesses the potential impacts and likelihood of each risk, allowing a risk rating or risk score to be assigned depending on severity. This step ensures that all identified risks are given a rating or score, which initiates the prioritization process on what to address first.

Key activities include:

• Qualitative Analysis: Use descriptive scales and tools like risk matrices and impact/probability charts to assess risks based on their likelihood and impact. These tools provide an efficient and straightforward approach to ranking risks, with detailed information on risk matrix components and our recommended descriptive scales outlined in the table below.

• Quantitative Analysis: To address more complex risks, numerical methods such as Monte Carlo simulations, sensitivity analysis, and decision tree analysis should be applied. For example, Monte Carlo simulations use probability distributions to model uncertainty and predict a range of possible outcomes. These techniques combine to offer a more detailed understanding of risk impacts, specifically concerning project schedules and costs.

Step 4: Risk Evaluation

With the analysis complete, it’s time to evaluate the risks. Risk evaluation involves comparing the results of your analysis with predefined risk criteria to determine the significance of each risk and decide on appropriate responses.

Key activities include:

• Risk Ranking: Risks are ranked according to their risk ratings, which are established during the previous risk analysis step. Once these ratings are identified, project managers can prioritize risks based on their severity, enabling focused attention on high-priority risks or those that demand immediate action.
• Risk Tolerance Assessment: Compare the evaluated risks against the project's risk acceptance criteria. This step determines which risks fall within or exceed acceptable limits, guiding the subsequent treatments and controls required. It also outlines high-level details, such as the responsible party or delegated authority, and specifies the review period for each risk based on predefined criteria.
• Decision-Making: Based on the evaluation, decide which risks need immediate treatment, monitoring, or acceptance. This ensures that resources are focused on the most critical risks.

Step 5: Risk Treatments and Controls

Now that risks are evaluated, the next step is to develop and implement strategies to address them. Risk treatments and controls are essential for managing risks proactively.

Key activities include:

• Developing Treatment Plans: Create a detailed risk management plan to implement selected risk treatment options to manage identified risks effectively. These plans outline the specific actions, resources, responsibilities, and timelines required to modify risks according to the chosen risk treatment strategies. This could involve financial and time contingency allowances, safety protocols, revising project plans, and amending operational processes.
• Implementing Risk Controls: This process involves implementing measures to modify risk by developing strategies to either reduce the likelihood of a risk occurring, minimize its potential impact, or both. It focuses on selecting the most suitable combination of risk treatment options to achieve an optimal balance between risk reduction and the cost or feasibility of implementing those controls. The table below outlines various available risk treatment options.‍
• Allocating Resources: Make sure that adequate resources, including budget, personnel, and time, are allocated to effectively implement risk treatments.

Step 6: Monitor and Review

Monitoring and reviewing risks involves the continuous process of overseeing and evaluating both internal and external environments to ensure that risk management activities remain effective, relevant, and aligned with the organization's objectives.

Key activities include:

• Regular Risk Reviews: Periodically assess risk status of risks and the effectiveness of controls. While individual reviews of the risk register are useful, risk workshops offer a more effective approach. These workshops help keep the team focused on risks, provide a collective review of current risks, and identify any new uncertainties.
• Risk Register Updates: Regularly update the risk register to ensure it accurately reflects the current status of all identified risks and any new risks that have emerged. This ongoing maintenance is crucial for remaining responsive to changing project conditions, allowing for ease in risk prioritization and making better-informed decisions.
• Continuous Improvement: Use lessons learned from ongoing projects to refine and improve risk management strategies. This iterative process helps adapt to new challenges and ensures that the project stays on track.

Step 7: Communication and Consultation

Effective communication and consultation are vital to the success of the risk management process. Keeping all stakeholders informed about risks and involving them in decision-making ensures that everyone is aligned and that the project moves forward smoothly.

Key activities include:

• Stakeholder Engagement: Regularly engage stakeholders through meetings and updates to gather their input and address concerns.
• Transparent Reporting: Develop clear and transparent reporting practices to keep everyone informed about the status of risks and the actions being taken.
• Feedback Mechanisms: Establish channels for stakeholders to provide feedback, which can be used to improve risk management practices.
• Encouraging Collaboration: Foster a collaborative environment where team members and stakeholders work together to manage risks effectively.

Example: Applying the 7 Risk Management Framework (RMF) Steps

To understand how the risk management framework (RMF) works in real construction projects, let’s explore a common scenario.

Let's say a construction company is developing a 30-story commercial tower. During the risk identification stage, the team flags supply chain disruptions as a major risk. Material shortages and delivery delays could slow down the project, increase costs, and affect deadlines.

1. Establish the Context:
   • The team outlines project objectives, constraints, and risk thresholds.
   • They identify long lead times for steel and concrete as key risks.
2. Risk Identification:
   • The project team conducts a risk workshop with contractors and suppliers.
   • They analyze historical project data and note past delays in structural material deliveries.
3. Risk Analysis:
   • Using a risk matrix, they assess the likelihood and impact of delays.
   • A quantitative risk assessment with Monte Carlo simulations shows that a two-week delay in steel deliveries could push back the schedule by six weeks.
4. Risk Evaluation:
   • The delay risk is classified as high-priority based on its potential impact.
   • The team determines that mitigation measures are required to keep the project on track.
5. Risk Treatment and Controls:
   • Backup suppliers are secured to prevent dependency on a single vendor.
   • The procurement team negotiates supply contracts with penalties for late deliveries.
   • A buffer stock of critical materials is pre-ordered to prevent downtime.
6. Monitor and Review:
   • The risk register is updated weekly to track material shipments.
   • The project team conducts weekly risk review meetings to reassess supply chain risks.
7. Communication and Consultation:
   • Project managers provide real-time updates to stakeholders on material availability.
   • Digital dashboards and automated reports help owners, investors, and contractors track risks efficiently.

By proactively applying the Risk Management Framework (RMF), the project team successfully prevents major delays and keeps the construction timeline intact. The structured approach ensures that risks are identified early, analyzed correctly, and mitigated effectively, resulting in smooth project execution.

This example highlights why a proactive risk management process is essential in construction. Without it, projects face unexpected setbacks, leading to higher costs, missed deadlines, and dissatisfied stakeholders.

Let Mastt Help You Streamline the Risk Management Process

Managing project risks effectively requires a structured Risk Management Framework (RMF) that ensures every step is handled efficiently. Mastt simplifies the risk management process by providing real-time tracking, automated reporting, and data-driven risk assessments, helping project teams stay ahead of potential issues.

Here's how Mastt supports every step of the risk management process:

✔ Establish Context: Define risk thresholds, project scope, and objectives within a structured dashboard.
✔ Identify Risks: Use automated risk registers to log and categorize risks in real time.
✔ Analyze Risks: Get instant risk scoring and likelihood assessments using interactive tools.
✔ Evaluate Risks: Prioritize risks based on real-time data to focus on what matters most.
✔ Implement Risk Treatments: Assign actions, allocate resources, and track risk mitigation progress.
✔ Monitor & Review: Continuously update the risk register and get alerts on changing risk conditions.
✔ Communicate & Report: Generate clear, data-driven risk reports for stakeholders in minutes.

With Mastt's intelligent risk management features, teams can reduce delays, control costs, and improve decision-making—all while ensuring risks are proactively managed throughout the project lifecycle. Streamline your risk management process with Mastt and keep your projects on track.