Risk Management: Every business faces some forms of risks. If unchecked, these risks have the potential to cripple your business operations, cause financial loss, land you in legal trouble, or even force you to close shop. To secure the future of your business, you must have a strategy that will identify threats, prevent them from happening, and limit their impact if they do occur.
What Is Enterprise Risk Management
Enterprise risk management in business includes the methods and strategies that are adopted by an organization to identify risks to the company’s goals and operations, assess the impact of these hazards, determine their likelihood of the threats occurring, and prepare for these risks. After identifying what you are up against, the next step is to create a risk management framework. Here, you give employees responsibilities, set up rules and policies, and acquire tools or technology to control these hazards.
Having a risk management plan comes with countless benefits. First, it creates a risk-focused culture in the organization, thus ensuring threats don’t go unnoticed. Second, it allows standardized risk reporting. The reports are documented in a logbook and provide organized, insightful, and actionable details that help the leadership to make better decisions. Third, the process gives companies an early warning giving them ample time to respond. Risk management also allows you to allocate just the right amount of resources to combat the risk, thus preventing wastage of resources.
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Types of Risks
The type of risks you encounter mostly depends on the nature of your business. However, other threats are prevalent in all industries. Some of the common hazards include physical risks such as fires, location risks like floods, hurricanes and natural disasters, personal risks like internal fraud, injury, and drug abuse, and technology risks such as data loss, cybercrime, power outages, and equipment failure. Others include strategic, market, reputational, and compliance risks.
Risk Management Steps
To have a robust risk management plan, follow the steps below. Anticipating risk
1. Identify the Risk
The first and most important step you should take is to identify the risks that your organization faces. Leverage the knowledge and experience of all individuals within the organization to help you uncover every potential threat. These include risks that your organization has encountered before and those that you anticipate. To identify all risks, you can also conduct internal research, consult an expert, analyze customer complaints, and use risk assessment software tools. After recognizing the various threats, document them in the risk register. Make sure the risk log is visible and accessible to every stakeholder to create awareness on all levels.
2. Analyze the Risk
After you have a list of all risk, now it’s time to delve into the details. Work out which threats are more likely to occur, and what the ramifications of each hazard are. Take one item at a time and evaluate how many business operations it can affect. Consider the impact on finance, equipment, customers, and any other factors that are essential to your entity. It will help you know which risks to prioritize on. The results should add to the risk register.
3. Rank the Risk
Rank each risk depending on its likelihood of happening and severity. Threats that can cause catastrophic losses should be ranked as high, and those that have minimal effects should classify as low-risk. Ranking helps an organization to gain a better view of their risk exposure and allows it to know exactly where to focus their efforts.
4. Treat the Risk
Also known as risk response planning, this step involves evaluating your highest ranked and most significant risks and developing a plan to eradicate or contain them. Here, all stakeholders must come together and work on a solution to eliminating each hazard. You should develop a preventative program, a mitigation strategy, and a contingency plan.
Depending on the nature of your organization, treating the risk can involve; changing processes and policies that can expose you to risk, training employees, creating a risk management team, complying with legal requirements, adopting a plan B, and transferring the risks through contracting or buying insurance. The treatment removes vulnerabilities and helps the organization to achieve acceptable risk levels.
5. Monitor and Review the Risk
Not all risks can permanently be eradicated. Market risks, natural disasters, and cybercrime are some of the risks that companies need to be on the lookout for. For better results, form a team that will be in charge of tracking the threats. They should use the risk management register to keep close tabs on the hazards.
Every member of the organization needs to take part in monitoring. You should also review the risk management plans to know whether they are useful. If they aren’t, replace them with better controls. The review process may lead you to take steps such as adopting a new risk culture, upgrading your insurance cover, and investing in risk monitoring software.
Risk Management in an IT Environment
Whether you have a tech business, you operate online, or you handle sensitive customer data, the basics of the risk management process are the same. In an IT environment, your risk management plan should focus on the threats that can affect customer data, networks, and equipment. The dangers that you should look out for include hacker attacks, accidental data loss, data misuse, insider threats, and compliance risks. To protect your entity, create a robust plan that takes into account all major and minor threats.
Risks in the business environment are continually evolving. A risk management plan will help you anticipate any threat, avoid unpleasant surprises, have countermeasures in place, and eliminate or minimize the damage. When you are aware of all risks, you will be in a better position to pursue and achieve your business goals.
Ken Lynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that. He has propelled Reciprocity’s success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT. Learn more at ReciprocityLabs.com.