Risk management is a vital skill for any project or organization that wants to succeed in today’s uncertain and complex world. Risks are the events or conditions that can have a positive or negative impact on the project or organizational objectives, such as scope, quality, cost, time, etc. Risks can arise from various sources, such as internal, external, technical, operational, financial, legal, environmental, etc.
However, risk management is not an easy task. It requires a systematic and consistent process that can identify, analyze, plan, implement, and review the risks that can affect your project or organization. It also requires a set of skills and tools that can help you assess, prioritize, and respond to the risks appropriately and effectively. Furthermore, it requires a positive and proactive culture and mindset that can embrace and manage the uncertainties and complexities of the risk environment.
In this article, you will learn how to master the risk management process with these 5 simple steps that will help you identify, analyze, plan, implement, and review the risks that can affect your project or organization. By following these steps, you will be able to reduce the negative impacts and enhance the positive opportunities of the risks, as well as improve your decision-making, performance, and reputation.
What is Risk Management and Why is it Important?
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Risk management is the process of identifying, analyzing, planning, implementing, and reviewing the risks that can affect a project or organization. It involves the following activities:
- Identifying the risks: This is the process of finding out the potential risks that can affect your project or organization, and documenting and categorizing them according to their sources and types.
- Analyzing the risks: This is the process of assessing the probability and impact of each risk, and prioritizing them based on their severity and urgency.
- Planning the responses: This is the process of developing and documenting the risk response plans, which include the strategies, actions, resources, timelines, and contingency plans for each risk.
- Implementing the responses: This is the process of executing the risk response plans, and monitoring and controlling the risk response activities and results.
- Reviewing the process: This is the process of evaluating the effectiveness and efficiency of the risk management process, and identifying and implementing the improvement opportunities.
Risk management is important for any project or organization, because it can help you:
- Achieve the project or organizational goals and objectives: By managing the risks, you can ensure that your project or organization can deliver the expected outcomes and benefits, and meet the stakeholder expectations and requirements.
- Prevent or minimize the losses and damages caused by the risks: By managing the risks, you can avoid or reduce the negative impacts of the risks, such as delays, errors, defects, failures, accidents, injuries, lawsuits, etc.
- Optimize the use of resources and maximize the value of the outcomes: By managing the risks, you can allocate and utilize the resources efficiently and effectively, and increase the quality and quantity of the outcomes.
- Enhance the stakeholder satisfaction and trust: By managing the risks, you can communicate and collaborate with the stakeholders transparently and honestly, and demonstrate your competence and credibility.
- Comply with the legal and ethical standards and regulations: By managing the risks, you can adhere to the laws and rules that govern your project or organization, and respect the rights and interests of the stakeholders.
What are the Benefits of Having a Systematic and Effective Risk Management Process?
Having a systematic and effective risk management process can provide you with many benefits, such as:
- It provides a clear and consistent framework and methodology for managing the risks: A systematic and effective risk management process that can help you establish and follow a standard and structured approach for identifying, analyzing, planning, implementing, and reviewing the risks. This can help you ensure the completeness, accuracy, and reliability of the risk management activities and results.
- It ensures that all the relevant risks are identified and assessed in a timely and accurate manner: A systematic and effective risk management process that can help you use various tools and techniques to identify and assess the potential risks, such as brainstorming, SWOT analysis, checklists, interviews, surveys, etc. This can help you capture and consider all the possible risks that can affect your project or organization, and avoid missing or overlooking any important risks.b
- It enables the selection and implementation of the most appropriate and cost-effective risk response strategies: A systematic and effective risk management process that can help you choose and implement the best risk response strategies for each risk, based on the cost-benefit analysis, risk appetite, and risk tolerance of your project or organization. This can help you optimize the risk-return trade-off, and balance the risk exposure and risk response costs.
- It facilitates the monitoring and control of the risk response activities and results: A systematic and effective risk management process that can help you use various tools and techniques to monitor and control the risk response activities and results, such as key performance indicators, metrics, reports, audits, reviews, etc. This can help you track and measure the progress and performance of the risk response plans, and identify and address any issues or deviations that may arise.
- It supports the continuous improvement and learning of the risk management process and skills: A systematic and effective risk management process that can help you use various tools and techniques to evaluate and improve the risk management process and skills, such as feedback, lessons learned, best practices, benchmarks, etc. This can help you identify and implement the improvement opportunities, and enhance the quality and efficiency of the risk management process and skills.
What are the Main Challenges and Pitfalls of Risk Management and How to Avoid Them?
Risk management is not without its challenges and pitfalls. Some of the main challenges and pitfalls of risk management and how to avoid them are:
Risk awareness and culture
It is a pitfall of not having a sufficient understanding and appreciation of the importance and value of risk management among the project or organizational members and stakeholders. This can lead to a lack of support and commitment for the risk management process, and a lack of participation and contribution to the risk management activities. To avoid this challenge or pitfall, you can promote the risk management awareness and culture among the project or organizational members and stakeholders, and provide the necessary training and education on the risk management concepts, principles, and practices.
Risk information and communication
It is a drawback of not having a sufficient and reliable information and communication on the risks and the risk management activities among the project or organizational members and stakeholders. This can lead to a lack of awareness and understanding of the risks and the risk management process, and a lack of feedback and input for the risk management activities. To avoid this challenge or pitfall, you can collect and update the risk information from various sources and methods, and communicate and share the risk information with the relevant stakeholders using the appropriate channels and formats.
Risk tools and techniques
It is a challenge of not having the appropriate and effective tools and techniques for identifying, analyzing, planning, implementing, and reviewing the risks. This can lead to a lack of quality and consistency of the risk management activities and results, and a lack of efficiency and effectiveness of the risk management process. To avoid this challenge or pitfall, you can use the appropriate and effective risk tools and techniques, such as risk register, risk matrix, risk heat map, risk scorecard, risk dashboard, etc., that can help you perform the risk management activities and produce the risk management results in a systematic and consistent manner.
Risk integration and alignment
It is an issue of not having a proper integration and alignment of the risk management process with the project or organizational processes, such as planning, execution, monitoring, and evaluation. This can lead to a lack of coherence and consistency of the risk management process and the project or organizational objectives, and a lack of optimization and maximization of the risk management outcomes and benefits. To avoid this challenge or pitfall, you can integrate and align the risk management process with the project or organizational processes, and ensure that the risk management process supports and contributes to the achievement of the project or organizational goals and objectives.
How to Master the Risk Management Process with These 5 Simple Steps?
Now that you have learned what is risk management, why is it important, what are the benefits of having a systematic and effective risk management process, and what are the main challenges and pitfalls of risk management and how to avoid them, you are ready to master the risk management process with these 5 simple steps:
Step 1: Identify the Risks
The first step to master the risk management process is to identify the risks that can affect your project or organization. This step involves finding out the potential risks that can have a positive or negative impact on your project or organizational objectives, and documenting and categorizing them according to their sources and types.
To identify the risks, you can use various tools and techniques, such as:
- Brainstorming: This is a technique that involves generating and collecting as many ideas as possible from a group of people, without judging or filtering them. You can use brainstorming to identify the risks by asking questions such as: What can go wrong? What can go right? What are the assumptions? What are the uncertainties? What are the opportunities? You can use a facilitator to guide the brainstorming session and record the ideas on a flip chart or a whiteboard.
- SWOT analysis: This is a technique that involves analyzing the strengths, weaknesses, opportunities, and threats of your project or organization. You can use SWOT analysis to identify the risks by examining the internal and external factors that can affect your project or organization positively or negatively. You can use a SWOT matrix to organize the factors into four categories: strengths, weaknesses, opportunities, and threats.
- Checklists: This is a technique that involves using a list of predefined questions or items to identify the risks. You can use checklists to identify the risks by referring to the previous or similar projects or organizations, and the best practices and standards of your industry or domain. You can use a checklist template to create and customize your own checklist, or use an existing checklist from a reliable source.
- Interviews: This is a technique that involves asking questions and collecting information from the people who are involved or knowledgeable about your project or organization, such as sponsors, clients, team members, vendors, experts, etc. You can use interviews to identify the risks by preparing and conducting the interviews in a structured and systematic manner, and recording and analyzing the responses. You can use an interview guide to plan and conduct the interviews, and an interview report to document and summarize the findings.
- Surveys: This is a technique that involves distributing and collecting questionnaires from a large number of people who are involved or knowledgeable about your project or organization, such as sponsors, clients, team members, vendors, experts, etc. You can use surveys to identify the risks by designing and administering the surveys in a clear and concise manner, and collecting and analyzing the data. You can use a survey tool to create and distribute the surveys, and a survey report to document and present the results.
After identifying the risks, you need to document and categorize them according to their sources and types. You can use various tools and techniques to document and categorize the risks, such as:
- Risk register: This tool involves recording and storing the information about the identified risks, such as the risk name, description, category, source, owner, etc. You can use a risk register to document and categorize the risks by creating and updating a risk register template, or using an existing risk register from a reliable source.
- Risk matrix: This tool involves plotting and displaying the identified risks on a matrix, based on their probability and impact. You can use a risk matrix to document and categorize the risks by creating and updating a risk matrix template, or using an existing risk matrix from a reliable source.
- Risk map: This tool involves mapping and visualizing the identified risks on a diagram, based on their sources and types. You can use a risk map to document and categorize the risks by creating and updating a risk map template, or using an existing risk map from a reliable source.
Step 2: Analyze the Risks
The second step to master the risk management process is to analyze the risks that can affect your project or organization. This step involves assessing the probability and impact of each risk, and prioritizing them based on their severity and urgency.
To analyze the risks, you can use various tools and techniques, such as:
- Scoring: This technique involves assigning numerical values to the probability and impact of each risk, based on a predefined scale and criteria. You can use scoring to analyze the risks by defining and applying a scoring scale and criteria, such as 1-5 or 1-10, and low-medium-high or very low-very high, and calculating the risk score by multiplying the probability and impact values.
- Ranking: This technique involves ordering the risks according to their risk score, from the highest to the lowest. You can use ranking to analyze the risks by comparing and sorting the risk scores of each risk, and assigning a rank number to each risk, such as 1, 2, 3, etc.
- Rating: This technique involves assigning a qualitative label to the risk score of each risk, based on a predefined scale and criteria. You can use rating to analyze the risks by defining and applying a rating scale and criteria, such as low, moderate, high, or extreme, and color-coding the risk score of each risk, such as green, yellow, orange, or red.
- Simulation: This technique involves using a mathematical model to simulate the possible outcomes and effects of the risks on your project or organization, based on the probability and impact data. You can use simulation to analyze the risks by using a simulation tool or software, such as Monte Carlo simulation, and running and analyzing the simulation results, such as the expected value, the standard deviation, the confidence interval, etc.
After analyzing the risks, you need to prioritize them based on their probability and impact, and their severity and urgency. You can use various tools and techniques to prioritize the risks, such as:
- Risk heat map: This tool involves displaying and highlighting the risks on a matrix, based on their probability and impact, and their rating and color. You can use a risk heat map to prioritize the risks by creating and updating a risk heat map template, or using an existing risk heat map from a reliable source.
- Risk scorecard: This tool involves summarizing and presenting the information and data about the risks, such as the risk name, description, category, source, owner, score, rank, rating, color, etc. You can use a risk scorecard to prioritize the risks by creating and updating a risk scorecard template, or using an existing risk scorecard from a reliable source.
- Risk dashboard: This tool involves monitoring and reporting the status and performance of the risks, such as the number, type, distribution, trend, progress, etc. of the risks. You can use a risk dashboard to prioritize the risks by creating and updating a risk dashboard template, or using an existing risk dashboard from a reliable source.
Step 3: Plan the Responses
The third step to master the risk management process is to plan the responses for the risks that can affect your project or organization. This step involves developing and documenting the risk response plans, which include the strategies, actions, resources, timelines, and contingency plans for each risk.
To plan the responses, you can use various tools and techniques, such as:
- Avoid: This strategy involves eliminating or preventing the risk from occurring, by changing the project or organizational plan, scope, schedule, budget, etc. You can use this strategy to plan the responses for the risks that have a high probability and a high impact, and that cannot be mitigated, transferred, or accepted. You can use a risk avoidance plan to document and implement the risk avoidance actions, such as canceling, postponing, or modifying the project or organizational activities or deliverables.
- Mitigate: This strategy involves reducing or minimizing the probability and/or impact of the risk, by implementing the preventive or corrective measures, such as improving the quality, testing, training, backup, etc. You can use this strategy to plan the responses for the risks that have a high or moderate probability and a high or moderate impact, and that cannot be avoided, transferred, or accepted. You can use a risk mitigation plan to document and implement the risk mitigation actions, such as enhancing, optimizing, or improving the project or organizational processes or outcomes.
- Transfer: This strategy involves shifting or sharing the responsibility and/or liability of the risk to a third party, such as a vendor, a partner, an insurer, etc. You can use this strategy to plan the responses for the risks that have a low or moderate probability and a high impact, and that cannot be avoided, mitigated, or accepted. You can use a risk transfer plan to document and implement the risk transfer actions, such as outsourcing, contracting, insuring, or hedging the project or organizational activities or deliverables.
- Accept: This strategy involves acknowledging and accepting the risk and its consequences, without taking any action to change or control it. You can use this strategy to plan the responses for the risks that have a low probability and a low impact, and that cannot be avoided, mitigated, or transferred. You can use a risk acceptance plan to document and implement the risk acceptance actions, such as monitoring, reporting, or allocating the project or organizational resources or reserves.
After planning the responses, you need to document and implement the risk response plans, which include the roles and responsibilities, actions, resources, timelines, and contingency plans for each risk. You can use various tools and techniques to document and implement the risk response plans, such as:
- Risk response plan template: This tool involves creating and updating a template that contains the information and data about the risk response plans, such as the risk name, description, category, source, owner, strategy, actions, resources, timelines, and contingency plans. You can use a risk response plan template to document and implement the risk response plans, by filling in the template with the relevant information and data, and following the template instructions and guidelines.
- Risk log: This tool involves recording and tracking the status and progress of the risk response plans, such as the risk name, description, category, source, owner, strategy, actions, resources, timelines, contingency plans, issues, actions taken, results, etc. You can use a risk log to document and implement the risk response plans, by creating and updating a risk log template, or using an existing risk log from a reliable source.
- Risk report: This tool involves summarizing and presenting the information and data about the risk response plans, such as the risk name, description, category, source, owner, strategy, actions, resources, timelines, contingency plans, issues, actions taken, results, etc. You can use a risk report to document and implement the risk response plans, by creating and updating a risk report template, or using an existing risk report from a reliable source.
Step 4: Implement the Responses
The fourth step to master the risk management process is to implement the responses for the risks that can affect your project or organization. This step involves executing the risk response plans, and monitoring and controlling the risk response activities and results.
To implement the responses, you can use various tools and techniques, such as:
- Risk owners: These are the people who are responsible and accountable for managing the risks, and implementing the risk response plans. You can use the risk owners to implement the responses, by assigning and empowering the risk owners, and providing them with the necessary support and guidance.
- Risk champions: These are the people who are supportive and enthusiastic about the risk management process, and who can help and influence the risk owners and other stakeholders. You can use the risk champions to implement the responses, by identifying and engaging the risk champions, and leveraging their skills and networks.
- Risk committees: These are the groups of people who are responsible and accountable for overseeing and guiding the risk management process, and approving and reviewing the risk response plans. You can use the risk committees to implement the responses, by establishing and operating the risk committees, and communicating and collaborating with them regularly.
- Risk logs: These are the tools that involve recording and tracking the status and progress of the risk response plans, such as the risk name, description, category, source, owner, strategy, actions, resources, timelines, contingency plans, issues, actions taken, results, etc. You can use the risk logs to implement the responses, by creating and updating the risk logs, and using them to monitor and control the risk response activities and results.
To monitor and control the risk response activities and results, you can use various tools and techniques, such as:
- Key performance indicators: These are the measures that indicate the performance and progress of the risk response activities and results, such as the number, type, distribution, trend, progress, etc. of the risks and the risk responses. You can use the key performance indicators to monitor and control the risk response activities and results, by defining and applying the key performance indicators, and collecting and analyzing the key performance indicator data.
- Metrics: These are the quantitative data that measure the performance and progress of the risk response activities and results, such as the cost, time, quality, scope, etc. of the risks and the risk responses. You can use the metrics to monitor and control the risk response activities and results, by defining and applying the metrics, and collecting and analyzing the metric data.
- Reports: These are the documents that summarize and present the information and data about the risk response activities and results, such as the key performance indicators, metrics, issues, actions taken, results, etc. You can use the reports to monitor and control the risk response activities and results, by creating and updating the reports, and distributing and discussing them with the relevant stakeholders.
- Audits: These are the independent and objective assessments that evaluate the effectiveness and efficiency of the risk response activities and results, such as the compliance, quality, accuracy, reliability, etc. of the risks and the risk responses. You can use the audits to monitor and control the risk response activities and results, by planning and conducting the audits, and reporting and implementing the audit findings and recommendations.
- Reviews: These are the periodic and systematic examinations that review the performance and progress of the risk response activities and results, such as the strengths, weaknesses, opportunities, and threats of the risks and the risk responses. You can use the reviews to monitor and control the risk response activities and results, by planning and conducting the reviews, and reporting and implementing the review findings and recommendations.
To communicate and collaborate with the stakeholders on the risk response implementation, you can use various tools and techniques, such as:
- Stakeholder analysis: This is a technique that involves identifying and analyzing the stakeholders who are involved or affected by the risk response implementation, such as the sponsors, clients, team members, vendors, etc. You can use the stakeholder analysis to communicate and collaborate with the stakeholders, by determining and understanding their needs, expectations, interests, influence, etc.
- Communication plan: This is a tool that involves planning and documenting the communication activities and information for the risk response implementation, such as the communication objectives, messages, channels, formats, frequency, etc. You can use the communication plan to communicate and collaborate with the stakeholders, by creating and updating the communication plan, and following the communication plan instructions and guidelines.
- Collaboration tools: These are the tools that involve using the technology and software to facilitate the communication and collaboration among the stakeholders, such as the email, phone, chat, video conference, web conference, etc. You can use the collaboration tools to communicate and collaborate with the stakeholders, by selecting and using the appropriate and effective collaboration tools, and ensuring the security and reliability of the collaboration tools.
Step 5: Review and Improve the Process
The fifth and final step to master the risk management process is to review and improve the process. This step involves evaluating the effectiveness and efficiency of the risk management process, and identifying and implementing the improvement opportunities.
To review and improve the process, you can use various tools and techniques, such as:
- Feedback: This is a technique that involves collecting and analyzing the opinions and suggestions of the stakeholders on the risk management process, such as the strengths, weaknesses, opportunities, and threats of the risk management process. You can use the feedback to review and improve the process, by soliciting and receiving the feedback from the stakeholders, and using the feedback to identify and implement the improvement opportunities.
- Lessons learned: This is a technique that involves capturing and documenting the knowledge and experience gained from the risk management process, such as the best practices, success factors, challenges, pitfalls, etc. of the risk management process. You can use the lessons learned to review and improve the process, by conducting and participating in the lessons learned sessions, and using the lessons learned to identify and implement the improvement opportunities.
- Best practices: These are the proven and effective methods and techniques that can enhance the quality and efficiency of the risk management process, such as the standards, guidelines, frameworks, models, etc. of the risk management process. You can use the best practices to review and improve the process, by researching and adopting the best practices from the previous or similar projects or organizations, and from the industry or domain experts and leaders.
- Benchmarks: These are the reference points or targets that can measure the performance and progress of the risk management process, such as the metrics, indicators, criteria, etc. of the risk management process. You can use the benchmarks to review and improve the process, by comparing and contrasting the actual and expected results of the risk management process, and using the benchmarks to identify and implement the improvement opportunities.
- PDCA cycle: This is a tool that involves using a four-step cycle to ensure the continuous improvement and learning of the risk management process, which are: Plan, Do, Check, and Act. You can use the PDCA cycle to review and improve the process, by following the PDCA cycle steps, which are:
- Plan: This is the step where you plan the risk management process, such as defining the objectives, scope, approach, methods, etc. of the risk management process.
- Do: This is the step where you do the risk management process, such as identifying, analyzing, planning, implementing, and reviewing the risks and the risk responses.
- Check: This is the step where you check the risk management process, such as monitoring and controlling the risk management activities and results, and evaluating the effectiveness and efficiency of the risk management process.
- Act: This is the step where you act on the risk management process, such as identifying and implementing the improvement opportunities, and updating and revising the risk management process.
- Maturity model: This is a tool that involves using a model that describes the levels of maturity and capability of the risk management process, such as the initial, repeatable, defined, managed, and optimized levels of the risk management process. You can use the maturity model to review and improve the process, by assessing and determining the current and desired levels of maturity and capability of the risk management process, and using the maturity model to identify and implement the improvement opportunities.
Conclusion
Risk management is a vital skill for any project or organization that wants to succeed in today’s uncertain and complex world. By mastering the risk management process with these 5 simple steps, you can identify, analyze, plan, implement, and review the risks that can affect your project or organization, and reduce the negative impacts and enhance the positive opportunities of the risks, as well as improve your decision-making, performance, and reputation.
We hope that this article has provided you with valuable and practical information and guidance on how to master the risk management process with these 5 simple steps. We encourage you to take action and apply the risk management process to your projects or organizations, and see the positive results and benefits for yourself.
If you have any questions, comments, or suggestions, please feel free to contact us. We would love to hear from you and help you with your risk management needs and goals. Thank you for reading and happy risk managing!
FAQs
Here are some frequently asked questions and answers related to the topic of mastering the risk management process with these 5 simple steps:
Q: What are some examples of risks that can affect a project or organization?
A: Some examples of risks that can affect a project or organization are:
- Technical risk: The risk of failures or defects in the project or organizational products, services, systems, processes, etc., that can affect the project or organizational quality and performance
- Financial risk: The risk of losses or damages due to the project or organizational financial transactions, such as budget, cash flow, revenue, expenses, etc., that can affect the project or organizational profitability and viability
- Legal risk: The risk of lawsuits or penalties due to the project or organizational legal obligations, such as contracts, regulations, laws, etc., that can affect the project or organizational reputation and compliance
- Environmental risk: The risk of impacts or damages to the project or organizational environment, such as natural, social, cultural, etc., that can affect the project or organizational sustainability and responsibility
Q: What are some common risk management tools and techniques that can be used in any industry or domain?
A: Some common risk management tools and techniques that can be used in any industry or domain are:
- Risk register: A tool that involves recording and storing the information about the identified risks, such as the risk name, description, category, source, owner, etc.
- Risk report: A tool that involves summarizing and presenting the information and data about the risk response plans, such as the risk name, description, category, source, owner, strategy, actions, resources, timelines, contingency plans, issues, actions taken, results, etc.
- SWOT analysis: A technique that involves analyzing the strengths, weaknesses, opportunities, and threats of your project or organization
- Interviews: A technique that involves asking questions and collecting information from the people who are involved or knowledgeable about your project or organization
- Feedback: A technique that involves collecting and analyzing the opinions and suggestions of the stakeholders on the risk management process
- PDCA cycle: A tool that involves using a four-step cycle to ensure the continuous improvement and learning of the risk management process, which are: Plan, Do, Check, and Act
Q: How to deal with the uncertainties and complexities of risk management in a dynamic and changing environment?
A: To deal with the uncertainties and complexities of risk management in a dynamic and changing environment, you can:
- Be flexible and adaptable: You can be flexible and adaptable to the changes and uncertainties that may occur in the risk environment, such as the emergence of new or unexpected risks, the changes in the probability and impact of the existing risks, the changes in the stakeholder needs and expectations, etc. You can adjust and modify your risk management plan and process accordingly, and be ready to respond to the new or changing situations and conditions.
- Be innovative and creative: You can be innovative and creative to the changes and uncertainties that may occur in the risk environment, such as the use of new or improved tools and techniques, the development and implementation of new or alternative risk response strategies, the exploration and exploitation of new or emerging opportunities, etc. You can experiment and learn from the new or different approaches and solutions, and take the calculated risks to achieve the desired results and benefits.
Q: How to align the risk management process with the strategic goals and objectives of the project or organization?
A: To align the risk management process with the strategic goals and objectives of the project or organization, you can:
- Understand and define the strategic goals: You can understand and define the strategic goals and objectives of the project or organization, such as the vision, mission, values, and principles, etc. of the project or organization, and the expected outcomes and benefits of the project or organization.
- Identify and analyze the risks: You can identify and analyze the risks that can affect the strategic goals and objectives of the project or organization, such as the risks that can hinder or enhance the achievement of the strategic goals and objectives, and the risks that can create or destroy the value of the project or organization.
- Plan and implement the risk responses: You can plan and implement the risk responses that can support and contribute to the strategic goals and objectives of the project or organization, such as the risk responses that can reduce the negative impacts and enhance the positive opportunities of the risks
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