The Importance of Risk Management to Business Success
Priyansh Solanki
The Importance
of Risk Management to Business Success
Risk management is an important part of
planning for businesses. The process of risk management is designed to reduce
or eliminate the risk of certain kinds of events happening or having an impact
on the business.
Definition
of Risk Management
Risk management is a process for identifying,
assessing, and prioritizing risks of different kinds. Once the risks are
identified, the risk manager will create a plan to minimize or eliminate the
impact of negative events. A variety of strategies is available, depending on
the type of risk and the type of business. There are a number of risk
management standards, including those developed by the Project Management
Institute, the International Organization for Standardization (ISO), the
National Institute of Science and Technology, and actuarial societies.
Types of
Risk
There are many different types of risk that
risk management plans can mitigate. Common risks include things like accidents
in the workplace or fires, tornadoes, earthquakes, and other natural disasters.
It can also include legal risks like fraud, theft, and sexual harassment
lawsuits. Risks can also relate to business practices, uncertainty in financial
markets, failures in projects, credit risks, or the security and storage of
data and records.
Goals of
Risk Management
The idea behind using risk management
practices is to protect businesses from being vulnerable. Many business risk
management plans may focus on keeping the company viable and reducing financial
risks. However, risk management is also designed to protect the employees,
customers, and general public from negative events like fires or acts of
terrorism that may affect them. Risk management practices are also about
preserving the physical facilities, data, records, and physical assets a
company owns or uses.
Process
for Identifying and Managing Risk
While a variety of different strategies can
mitigate or eliminate risk, the process for identifying and managing the risk
is fairly standard and consists of five basic steps. First, threats or risks
are identified. Second, the vulnerability of key assets like information to the
identified threats is assessed. Next, the risk manager must determine the
expected consequences of specific threats to assets. The last two steps in the
process are to figure out ways to reduce risks and then prioritize the risk
management procedures based on their importance.
Strategies
for Managing Risk
There are as many different types of
strategies for managing risk as there are types of risks. These break down into
four main categories. Risk can be managed by accepting the consequences of a
risk and budgeting for it. Another strategy is to transfer the risk to another
party by insuring against a particular, like fire or a slip-and-fall accident.
Closing down a particular high-risk area of a business can avoid risk. Finally,
the manager can reduce the risk’s negative effects, for instance, by installing
sprinklers for fires or instituting a back-up plan for data.
Having a risk management plan is an important
part of maintaining a successful and responsible company. Every company should
have one. It will help to protect people as well as physical and financial
assets.
Priyansh K. Solanki