In business, risk management is defined as the process of identifying, monitoring and managing potential risks in order to minimize the negative impact they may have on an organization. Examples of potential risks include security breaches, data loss, cyber attacks, system failures, and natural disasters. The initial step in the risk management process is to identify the risks to which the company is exposed in its operating environment. Business risk management (ERM) is the process of identifying, evaluating, managing and monitoring potential risks.
Its general objective is to minimize the damage that risks can cause to an organization. It uses the same framework as the Work Breakdown Structure (WBS) to develop a Risk Breakdown Structure (RBS). Organization of the risks associated with each activity in the work breakdown structure using a similar graphic approach. Risk treatment involves the implementation of controls, policies and procedures to avoid, minimize, or mitigate identified risks.
Risk management is important because it informs companies about threats in their operating environment and allows them to mitigate risks in a preventive way. These risk assessments are very common in the financial sector because the sector operates mainly with numbers, whether it is money, metrics, interest rates or any other data that is fundamental to risk assessments in the financial sector. The level of investment in formal risk management was also associated with psychological managerial dimensions. Risk control involves prevention (reducing the likelihood that the risk will occur) or mitigation, which consists of reducing the impact it will have if it occurs.
A reliable risk management process and a detailed risk management plan can help you understand and control risk. A company that can predict financial risk will limit its investments and focus on strengthening its finances. David Parker and Alison MobeyDavid Parker and Alison Mobey, “Action Research to Explore Perceptions of Risk in Project Management”, International Journal of Productivity and Performance Management 53, no. Not knowing a competitive risk can lead to a loss of market share, ignoring financial risk can cause financial losses, being aware of a safety risk can cause an accident, etc.
This exercise is an excellent way to identify as many risks as possible, improve communication about risks and encourage the cross-functional learning. Identifying sources of risk by category is another method for exploring potential risk in a project. Risk management is an important business practice that helps companies identify, evaluate, track and improve the risk mitigation process in the business environment. The smartest and fastest way to carry out these activities is to use an automated risk management solution such as the Reciprocity ROAR platform.
ClearRisk's cloud-based claims, incident and risk management system allows organizations to better control their risk management activities. With an effective risk management process, a company can identify which of these risks pose the greatest threats and then implement the best measures for those risks at acceptable levels.
