RISK MANAGEMENT

Risk management encompasses the  identification , analysis and response to risk factors that form part of the life of an organisation. Risk Management is the process of identifying , assessing and controlling threats to an organisation capital and earning .

Effective Risk Management mean attempting to control as mush as possible, future outcomes by acting proactively rather than reactively therefore effective risk management offers the potential to reduce both the possibility of a Risk occurring and its potential impact , these threats or risks could stem from a wide variety of sources including Financial uncertainty , Legal liabilities , Strategic management errors , Accidents and Natural disasters.

Information Technology security threats and data related risks are the risk management strategies to alleviate them have become a top priority for digitised organisation . As a result a Risk Management plan increasingly includes organisation processes for identifying and controlling threats to their digital assets including proprietary corporate data , a customer’s personality identifiable information and intellectual property .

Every business and organisation faces the risk of unexpected harmful events that can cost of the organisation money or cause it to permanently close .

Risk management allows organisation to attempt to prepare for the unexpected by minimising risks and extra cost before they happens .

 

IMPORTANCE OF RISK MANAGEMENT

By implementing a Risk Management plan and considering the various potential risks or event before they occur , an organisation can save money and protect and its future .

This is because a robust risk management main plan will help organisation to establish procedures to avoid potential threats , minimise their impact should they occur and cope with the result, this ability to understand and control risk enables organisation to be more confident in their further more strong corporate governance principals that focus specifically on risk management can help an organisation to reach their goals , effective risk management ensures risk of a high priority are dealt with as aggressively as possible more over the management will have the necessary information that they can use to make informed decisions and ensure that the business remains profitable.

 

BENEFITS OF RISK MANAGEMENT

Risk  Management is beneficial to individual , Business and Organisation .Important benefits of Risk Management are as follows –

Create a safe and secure work environment for all staff and customers. Increase the stability of business operations while also decreasing legal liabilities . Provides protection from events that are determined to both the organisation and environment Protects all involved people and assets from potential harm . Help to establish the organisation’s insurance need in order to save on unnecessary premiums. unnecessary Increase the stability of business operations while also decreasing legal liabilities.

Escalations --  When a project team can’t deal with a risk themselves, they need to escalate it to senior management for advice and action. Clear risk management processes take the guesswork out of when this should happen. A defined process ensures that important risks are seen and assessed by the right people at the right time, enabling early action as required to better address a potential problem.  

Focus on specific goal --  With risks being actively tracked and managed, the project team can maintain a focus on the critical outcomes. Risk management supports this because it serves to highlight where project outcomes may not be achieved, focusing the team on what to do about that particular concern to get the project back on track.

Firm Expectation--  Knowing that risk is being actively managed sets an expectation for project success. With the framework in place to deliver despite the known risks, and open communication about the project’s challenges with senior managers, everyone begins work knowing that success is the expected outcome.

Budget framework -- Project risk management means that contingency budgets can be more accurately estimated and rely less on the professional guesstimates of the project team. By incorporating risk management into schedule planning and cost planning you can create scenarios to better inform what you should be budgeting in terms of extra time, resource and money.

Strong communication --  Good risk management elevates the conversation. It creates a point of discussion between project teams and key senior stakeholders, prompting them to discuss the difficult topics and deal with potential causes of conflict. Suppliers are involved in the conversations too, as risk responses necessarily touch on their activities. Including them in risk management discussions can create more positive working relationships with their key personnel, because they’ll see that their success is tied to the success of the project and that there is willingness to work as a whole team to do something about it.

Quality data --  Senior leaders have access to better quality and more helpful data which enables them to make better decisions more grounded in the reality of a particular assignment .

Firm decision -- Team Leaders typically don’t like surprises. A robust approach to managing risk allows teams to better communicate about project challenges in a more timely way. Risk management practices let the team spot concerns far earlier.

Early awareness of potential problems means that the right people can intervene to mitigate a problem before it becomes too severe to do anything about. It also avoids the  manager as hero  scenario, and lots of firefighting, which is generally an expensive and high-effort way to fix problems. Managing risks before they materialise makes for fewer sensational headlines but a smoother, more efficient and cost-effective way of running your organisation .

Reduce problems --  Risk management practices let you see where projects need attention, and which projects these are. Dovetailing perfectly with any existing Management Office processes you already have in place, good risk management can give you the context for understanding the performance of a project and contribute to any health checks, peer reviews or audits.

IDENTIFICATION OF RISK

Risk is the part and parcel of almost each and every business and organisation whether small  medium , or large in term of capital investment , production , sales ,number of employees etc Risk might be hidden or disclosed , in present time or coming future . You as a Risk Manager have to identify the risk involved in any project or assignment and access the impact of risk .

You can identify the Risk applying your managerial skill in various ways , few of them are as follows –

Split  the Big picture – Risk identification can be tiring at the beginning of a risk management process . It might be helpful to start the risk investigation with a high level analysis by focusing on things that could go wrong in the organisation .These can be based on the business strategy and daily activities . Risk is multi faced there are many type of risk – Competitive , Financial , Safety , Operational , Technological , Legal ,Political, and Reputational risk . break down the organisation into each of these areas and consider the individual  weakness of each department . Asking self insightful question might reveal weakness in the organisation . These crucial question should be thoroughly explored to identify risks inherent in the organisation’s operation and activities .

Always Ask IF question – Thoroughly review the business plan and ask several what if question. Ask what  if question such as – failure in power supply ? problem in  access to the internet ? loss of vital document ?, best staff quit ?  suppliers went out of business ? Loss due to natural disaster ?  required services are stopped ?

Root cause analysis – Risk analysis also called root cause analysis is the process of identification and understanding the root cause of a problem . It helps prevent future problem by identifying the root cause of a problem before it becomes severe.

SWOT analysis – Swot  means strengths weakness , opportunities and threats to an organisation . Opportunities and threats can also be used to identify positive risk and advance risks respectively. The strength of the swot analysis is that it provides a clear picture of the overall strength and weakness .

Risk Register – The business  management body of knowledge defines a risk register as a document in which risk analysis and risk response planning result are recorded. A risk register often created at the early stages of a risk management , process , is a tool that helps a firm to track issues and address them as they arise . A risk register is an essential component of a risk management frame work .

Conduct Internal research --  If a company manages its claims and losses or has employees working closely with them , the organisation can perform internal research to identify risks across the organisation with simple observation. The organisation might recognise areas where things are not done correctly. Abnormally high costs in one department may also suggest an unmitigated risk. Root causes and occurrences can be identified through data and trend  analysis , incidents and near misses are critical indicators of problem areas that need to be addressed by the risk management team .

Conduct External Research – Every Industry has its unique trends and everyday occurrences  . Previous losses , Risk management success , new releases and legal precedents can assist an organisation in identifying its potential . A new  venture  can learn the  risk identification process from old  organisation to this  industry .

Welcome Employees Feedback – Employees from the frontline staff to the CEO will have a different perspective of the organisation its risk while performing their duties , hence employees are one of the most valuable resources in identifying risks . All employees especially key stake holders may have some insight into risk they encounter in day to day business procedures that the organisation might not have considered . The Management can seek employees feedback anonymously through one on one interaction and group discussions .

 

The most common responses to risk

Risk avoidance -- Avoidance is a method for mitigating risk by not participating in activities that may negatively affect the organisation. Not making an investment or starting a product line are examples of such activities as they avoid the risk of loss.

Risk reduction -- This method of risk management attempts to minimise the loss, rather than completely eliminate it. While accepting the risk, it stays focused on keeping insurance is preventative care.

Risk sharing -- When risks are shared, the possibility of loss is transferred from the individual to the group. A corporation is a good example of risk sharing — a number of investors pool their capital and each only bears a portion of the risk that the enterprise may fail.

Transferring risk -- Contractually transferring a risk to a third-party, such as, insurance to cover possible property damage or injury shifts the risks associated with the property from the owner to the insurance company.

Risk acceptance and retention -- After all risk sharing, risk transfer and risk reduction measures have been implemented, some risk will remain since it is virtually impossible to eliminate all risk (except through risk avoidance). This is called residual risk.

 

HOW TO MINIMISE RISK

Get Your Assets Insured -- One of the best ways to reduce business risk is by getting it  insured.           Thanks to the thriving insurance industry, you can choose from many packages offered by different       companies. Make sure that you do research to get the best deal though since some insurance agents       might exaggerate their claims just to get your attention.                                                                                    

Getting insurance allows you to protect your business when an accident or natural disaster happens. It also gives you peace of mind because you know that you have something to fall on in case your business hangs by a thread. An excellent insurance plan is something that protects your properties and employees. It also should have wide coverage.

Diversify Your Business -- Never invest all your hard earned money is one single business . Whether you are offering products, services, or both, diversifying your business offerings is a great idea. Not only does this help you offer more options to your customers, but it also helps you have various streams of income as well.

Diversifying your products or services help maintain the public  interest in your organisation.  It also can give you an edge over your competitors.

So if your business only depends on one product or service, then it’s time for you to offer more. In addition, always make sure that every new product or service you release is of high quality.

Control  Your Credit Limits -- Business loans are just so attractive that many businesses always take them. They may provide you enough capital to launch or expand a business, but they pose risks to your business as well.

If you cannot avoid getting a business loan, make sure that the one you’re getting is manageable and has the least interest. Compare plans from different banks & financial institution beforehand, and make sure you can actually afford the monthly payments.

Keep Knowledge Of Law -- Business regulations may vary from one state to another . As a businessman or a high level manager , you ought to have sufficient knowledge of the specific law which is applicable in your state . it is sometime advisable to hire expert who got the through knowledge of law .

Keep strong record -- Always  document important transactions in your business such as various  tax payments, and operations costs. It is also important for you to make sure that your employees are documenting everything properly before  signing  cheque  to make any kind of payment  

Doing so minimises the risk of theft and fraud. It’s because documenting helps you track where your finances go. It also helps you identify whether your spending is actually appropriate or not. While it is true that many  organisation sometimes do not spend money wisely, but you can still avoid it.

Hire qualified employees -- As a team leader or Risk Manager you have to keep in mind that  Employees are the backbone of a business. Without them, your business is going nowhere. However, there are many employees out there whose skills do not match their jobs. Such type of employees won’t give the desired result . Before appointing them all  the terms & conditions and standard have to followed .

While there are some employees who do just fine with mismatched skill sets, there are many who are not fit for the particular job. As a result, these employees hate their jobs. This clearly affects their job performance. To avoid this, make sure that your employees’ skills match their jobs. If not, then you can give them other roles and more training .

Reputation is Valuable -- While achieving short-term success is great for your business, it’s more crucial to keep it running for a long time. You can do this by building your reputation. Having a great reputation lets consumers trust your organisation. Consequently, maintaining your business becomes easier.

Very Important issue in business that  Reputation is a matter of perception that leads to various positive effects. Businesses with a great reputation are seen as having more value. Their customers are more loyal, and the industry believes that this organisation can deliver sustained earnings.

Be aware of Cyber Attack -- Online   Cyber attacks are on the rise, destroying many businesses worldwide. According to Surveys  these attacks do not only affect one business, but they also affect businesses in the same industry, too. Protecting your business  data can save you a lot of money in the long run. It can also protect your consumer’s data, which many states now require businesses to do. Reducing business risk should be one of your business’s top priorities. After all, you might not want to get out of business simply because you did not reduce the risks.

To Conclude – As mentioned earlier Risk is the part and parcel of the business . Risk will go through along with business activities up to its whole life span . You as a Risk Manager will have to manage it , minimise , it keep it as low as possible . you are expected to be vigilant every time because there is no time fixed for mishappening. In normal circumstances everybody is good manager but in odd hours who SAVE  the organisation from seen  or unforeseen risk  is real RISK MANAGER.

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Sources – Jitendrasxnblogs / site has strict sourcing guidelines and relies on peer-reviewed studies, academic research institutions, related books and journals. We always avoid using inauthentic references.

https://www.investopedia.com

https://www.opm.org.uk

https://www.marquette.edu

https://en.wikipedia.org

Disclaimer –

This article / blog is for information purpose only, but by no means it is a complete and exhaustive explanation on the whole topic, nor it’s intended as a substitute for therapy.