WHAT IS RISK MANAGEMENT?
Risk management is the identification, analysis and response to risk factors that might affect an organization. Effective risk management means trying to control, as much as possible, future outcomes by acting proactively rather than reactively to avoid certain unnecessary risks.
Risk management allows you to plan the course of action and risk prevention. Such planning makes it possible to reduce the likelihood of a risk occurring and to minimize its potential impact.
WHAT DO RISK MANAGEMENT FRAMEWORKS CONSIST OF?
Risk management frameworks allow you to identify existing risks, calculate the uncertainty and predict the impact they will have on your organization.
Risk management should be viewed as a disciplined, continuous process of identifying, preventing, and resolving risks. This includes planning, organizing, controlling costs and budgeting.
It is up to your organization to decide whether to accept or reject risks. This decision is directly related to the levels of risk tolerance that the organization has set for itself and willing to absorb.
An organization that contemplates good risk management will generally not have many surprises, because the focus is on proactive risk management.
3 RISK RESPONSE
Risk response generally takes one of the following three forms:
1.Prevention: the organization strives to eliminate a specific risk by suppressing its cause.
2.Mitigation: decreasing the projected financial value associated with risk by decreasing the possibility of the risk occurring.
3.Acceptance: the organization is forced to accept risk. This option is possible if a business entity develops contingencies to mitigate the impact of the risk, should it occur.
To know what kind of risk response to be adopted, your organization needs to have a detailed plan, which foresees all possible risk scenarios, what are their impacts on the organization and what is the solution. This anticipatory plan allows it to be executed as soon as there is a need, avoiding barriers or roadblocks that may arise in a crisis.
THE IMPORTANCE OF RISK MANAGEMENT
Risk management is an important process because it allows your organization to anticipate and be prepared for potential risks. By identifying, classifying, and finding solutions to the impact of potential risks, the organization is mitigating the impact they could cause.
Risk management provides certainty in making sound decisions. Risk assessment and management is the best way for an organization to prepare for eventualities that may arise in the path of progress and growth. When a company assesses its plan for dealing with potential risks, they develop structures to deal with them, increasing their chances of succeeding.
Also, management will have the necessary information that they can use to make informed decisions and ensure the profitability of the organization.
RISK ANALYSIS PROCESS: STEPS IN THE RISK ANALYSIS PROCESS
1.Identify the risks
The identification of risks should not be up to a single person, because to contemplate several scenarios requires sharing of different thoughts and perspectives. Your organization should gather its employees so that everyone can contribute to the potential risk analysis.
After the risks have been identified and described, it is necessary to rank them in order of priority, based on the impact they have your the company. Since it is not possible to mitigate all the risks at the same time, prioritizing allows to prioritize the risk mitigation according to the greatest consequences for the organization to be dealt with urgency.
2.Evaluate the risks
Before identifying the problem and finding a solution, it is necessary to take a retrospective look at what caused a certain situation to happen. The first step should always be to locate the causes of risks and how they can be avoided. By locating the cause, we can understand how it impacts various areas of the organization.
After identifying the risks and locating their causes, it is necessary to contemplate a few solutions to respond to the risk scenarios found. Besides responding immediately, these solutions should also contribute to the prevention of the risk's recurrence.
After identifying ideas to prevent certain risks, a contingency plan should be developed. Each prevention measure is assigned a list of tasks so that it can be properly implemented. The contingency plan allows the necessary measures to be taken to combat the risk at the time.
In sum, might as well anticipate rather than react. By contemplating a risk management plan in your organization, you will anticipate and prevent potential risks, mitigate their potential impact and the damage they can cause. Risk management helps you to make sound decisions, which positively impact the success of your organization. Hence it is the key element for the smooth running of your organization!