Difference Between Proactive and Reactive Risk Management

Key Difference- Proactive vs Reactive Risk Management
 

Before reading about the difference between proactive and reactive risk management, let us first look at what risk management is all about. Errors are common in any work environment. Such errors may occur due to human mistakes, unexpected accidents, natural disasters and third party decisions which affect the organization. Such errors can be either avoidable or unavoidable. The plan of minimizing such errors and mitigating its effects during an incident is known as risk management. This involves the identification, assessment and prioritization of risks. The objective of risk management is to deflect the effects of uncertainty in business. Let us now focus on proactive and reactive risk management. Though, both have the same objective, the process and identification of risk differentiate these two risk management styles. The key difference between proactive and reactive risk management is that the reactive risk management is a response based risk management approach, which is dependent on accident evaluation and audit based findings while proactive risk management is an adaptive, closed-loop feedback control strategy based on measurement and observation.

What is Reactive Risk Management?

Reactive risk management is often compared to a firefighting scenario. The reactive risk management kicks into action once an accident happens, or problems are identified after the audit. The accident is investigated, and measures are taken to avoid similar events happening in the future. Further, measures will be taken to reduce the negative impact the incident could cause on business profitability and sustainability.

Reactive risk management catalogues all previous accidents and documents them to find the errors which lead to the accident. Preventive measures are recommended and implemented via the reactive risk management method. This is the earlier model of risk management. Reactive risk management can cause serious delays in a workplace due to the unpreparedness for new accidents. The unpreparedness makes the resolving process complex as the cause of accident needs investigation and solution involve high cost, plus extensive modification.

What is Proactive Risk Management?

Contrary to reactive risk management, proactive risk management seeks to identify all relevant risks earlier, before an incident occurs. The present organization has to deal with an era of rapid environmental change that is caused by technological advancements, deregulation, fierce competition, and increasing public concern. So, a risk management which relies on past incidents is not a good choice for any organization. Therefore, new thinking in risk management was necessary, which paved the way for proactive risk management.

Proactive risk management can be defined as “Adaptive, closed loop feedback control strategy based on measurement, observation of the present safety level and planned explicit target safety level with a creative intellectuality”. The definition relates to the flexibility and creative intellectual power of humans who have a high sense of safety concern. Though, humans are the source of error, they can also be a very important safety source as per proactive risk management. Further, the closed loop strategy refers to setting up of boundaries to operate within. These boundaries are considered to have safe performance level.

Accidental analysis is part of the proactive risk management, with which accident scenarios are built and the key employees and stakeholders who may create the error for an accident, are identified.  So, past accidents are important in proactive risk management as well.

What is the between Proactive and Reactive Risk Management?

Now, we will look at the differences between the two risk management approaches.

Definition of Proactive and Reactive Risk Management

 Reactive: “A response based risk management approach, which is dependent on accident evaluation and audit based findings.”

 Proactive: “Adaptive, closed loop feedback control strategy based on measurement, observation of the present safety level and planned explicit target safety level with a creative intellectuality.”

Purpose of Proactive and Reactive Risk Management

Reactive risk management: Reactive risk management attempts to reduce the tendency of the same or similar accidents which happened in past being repeated in future.

Proactive risk management: Proactive risk management attempts to reduce the tendency of any accident happening in future by identifying the boundaries of activities, where a breach of the boundary can lead to an accident.

Features of Proactive and Reactive Risk Management

 Timeframe

Reactive risk management: Reactive risk management solely depends on past accidental analysis and response.

Proactive risk management: Proactive risk management combines a mixed method of past, present and future prediction before finding solutions to avoid risks.

 Flexibility

Reactive risk management: Reactive risk management does not accommodate prediction, creativity, and problem-solving ability of humans in its approach which makes it less flexible to changes and challenges.

Proactive risk management: Proactive risk management includes creative thinking, prediction. Further, it principally depends on the accident source to reduce the accident which is a human attribute. So, this lets it be very adaptive to changing environment.

Here, we have detailed the description of proactive and reactive risk management and the differences in between the two risk management approach. Proactive risk management is more advisable and is being adapted by present organizations.