Risk management reduces unexpected events. Most people don't like surprises, especially when they have an organizational impact. The goal of the risk manager is to plan all possible risks and then work to avoid or better manage them. Risk management is the process of identifying, evaluating and controlling threats to an organization's capital and profits.
These risks come from a variety of sources, including financial uncertainties, legal liabilities, technological problems, strategic management errors, accidents, and natural disasters. Risk management principles help everyone understand, control and mitigate risks. The information that is collected and learned through the process of developing a risk management plan can be applied to situations that arise long after the plan has been developed. Therefore, you are serious about managing your company and have decided to start taking seriously the control and mitigation of company risks.
Risk management activities help organizations to grow or protect their assets and resources from harm or loss due to factors related to business operations. In its most basic form, a formal risk management process should include defining clear objectives and expectations, identifying potential risks and their likelihood of occurring, evaluating these potential risks based on the organization's tolerance (risk appetite) towards them, determining cost-effective control measures and risk mitigation strategies to manage risks and educating all those involved on the best way to address each of them. However, before determining the best way to manage risks, the company must locate the cause of the risks by asking the following question: “What caused that risk and how could it influence the company?” By considering potential internal and external risks before they occur, you can avoid them entirely or reduce or increase the likelihood and potential impact of something happening. However, experts argue that traditional risk management lacks the mentality and mechanisms needed to understand risk as an integral part of business strategy and performance.
By organizing those known risks into manageable parts, you can create a strategy to protect yourself from threats or opportunities. Companies that have risk management plans can more easily prepare financially when a problem arises. Effective risk management means trying to control, as far as possible, future results by acting proactively rather than reactively. Risk management planning is the one that best helps a company to improve almost one aspect of its business operations, from product and service development to company finances.
Everyone can benefit from learning more about a full set of universal risk management principles. Companies at all stages of growth should consider a formalized risk management system, as ignoring these factors can have devastating effects on companies. If a company establishes risk management as a disciplined and ongoing process for the purpose of identifying and resolving risks, then risk management structures can be used to support other risk mitigation systems.
