Risk management process is a vital part of every growing enterprise that helps them to sail smoothly in the sea of business uncertainty, and take care of the hurdles that fall in the way.
If we go by the definition of risk management,
It all starts with identifying the risks, evaluating the risks and prioritizing the risks as per the severity of the impact, it can cause the business workflow.
The process is followed by accumulating the right resources and software for eliminating, or reducing the effect of the impact of the probable unfortunate occurrence to the minimal level.
Businesses have started to realize the power of risk management and what role it plays in the enterprise business ecosystem.
According to a business survey,
60% of the businesses feel that the volume and complexity of the risks has increased in the recent years.
In India, the approximate spending on the integrated risk management processes is $104 million.
To explain it in simple words,
The risk management process is early structured planning of the problems that can possibly occur in the path of your growing business and thus approach the situation with appropriate risk management techniques.
Now, the risks that we are talking about here can arrive from any source such as fluctuation in the financial market, project failure, credit accountability and the unprecedented crisis such as COVID – 19.
Such factors can disrupt the business workflow if businesses fail to implement a proper risk management strategy in place.
Thus, it is necessary for the businesses to know about the types of risks that can affect the enterprise with a severe impact and approach towards it profoundly with a definite plan.
But before we move towards the types of risks, let’s take a look at the objectives of the risk management process to get clarity on the entire course of action.
Objectives of risk management process
- Reduce the impact of risk on the business goals and objectives.
- Shrink the scope of human errors or risks.
- Setting up the legal obligations.
- Filling up the financial gaps of the business.
- Minimizing the risks associated with the development of new strategies or business ideas.
- Empowering you to make strong informed decisions and achieve desired outcomes.
The objective of the risk management process is to serve much more positive impact to your businesses than just meeting the above mentioned agendas.
It can enhance the overall business experience by streamlining the enterprise workflow into the direction where it grows profusely risk-free.
Now, you must have got a clear overview of the entire risk management process and the objectives it’s gonna fulfill for the business.
Before we jump onto the steps involved in the risk management process.
Let’s explore the types of risk management.
What are the types of risk management?
The risk management concept can be categorized into 2 types (External and internal business risks) and they are as follows:
External business risks
- Natural and economical business risks
The impact of such risks are predictable but the timing of their occurrences makes the businesses clueless if the necessary precautionary steps are not taken.
The situation of COVID-19 has affected the businesses around the globe severely and even led some enterprises down the bankruptcy path.
Results of such risks are seen immediately after the impact and thus strong prior strategizing and planning of the business must be done accordingly.
- Geopolitical business risks
Geopolitical business risks include the policy changes by the government, warlike situations and similar occurrences that can cause a deteriorating impact on the business in the long run.
It can be a sudden change in the government taxation system or the routine norms of the business that affects the businesses in the long run.
- Competitive business risks
This risk is purely based on the advanced technology landing into the market and changing the whole competition scenario for the businesses.
With compelling and advanced risk management softwares emerging in the market, aggressive competition is initiated among the enterprises leading competitive business risks.
The above mentioned are the external risks associated with the business. Now let’s list down the internal business risks of an enterprise.
Internal business risks
- Risks related to strategies
Building a unified strategy for the business is an important part of the business and any error while curating one will deluge the entire business ecosystem.
- Risks related to operations
The operations of the business runs in a certain cycle that includes risk assessments, decision making and implementation of strategies that gives rise to a desired output.
Thus every step of the operation must be handled with care for seamless workflow.
- Risks related to compliance
Compliance risks are associated with security, legal penalties, goods loss and other such things that have to be in accordance with the industry laws.
Thus, It is of utmost importance for the enterprise to follow only the best practices for compliance risk avoidance.
- Risks related to reputation
Reputation risks occur when the enterprise faces any negative publicity in the market or comes across any uncertain event that has a tenacious impact on the business reputation.
This risk occurs without warning and thus it is better to be well prepared for it.
So, these were the types of risks that every enterprise needs to be aware of, and plan their risk management strategies accordingly.
What are the steps involved in the business risk management process?
A strong risk management strategy has to be flexible right from its base and carry the entire process of the business effortlessly without any interruptions.
The steps of risk management strategy are as follows:
- A well prepared strategy
A well structured business strategy plays an important role in growing your enterprise and there are various methods that can help you in this journey.
The strategy of the business can vary from a simple SWOT analysis to a multi detailed plan route. But the most crucial section of the growth plan is to address the probable risks that can alter the route to successful implementation.
- Creating KPIs (Key Performance Indicators) for measuring business results
The ultimate goal of your strategic plan is to achieve compelling results and thus measuring the performance after the process execution is a crucial thing to do.
Setting KPIs for measuring the business strategy performance will guide you throughout the business journey by providing vital insights into the enterprise cycle.
These insights will not only help you enhance the business revenue cycle but also analyze the future needs of the enterprises along with determining the problems associated with it.
- Dig out risks that can interfere with your workflow efficiency
Identifying the risks prior to its occurrence helps the business to avoid future loss from that risk and also provides analytical data of that risk to tackle it effectively.
Break down the entire process into a number of steps for getting out a clear view on the bigger picture of the business.
Conduct the internal as well as the external research of the business market. This will help you to get knowledge on the probable common risks.
Employees are the ones that are going to implement the and execute the process. Thus, their feedback plays a vital role in the risk management structure, providing critical data for analysis.
- Identifying risk indicators
Whenever you execute the implementation process, identifying the risk indicators is very important for the business to know the risk of that activity.
System failure, IT security breach, corrupt data and so on are few of the risk indicators that can cause the interruption in delivering a seamless service to the customers.
This step identifies the triggers to a particular activity or process.
- Dedicated monitoring as well as reporting of the entire process
Once all the risk management strategies are implemented, monitoring and reporting of the process with real-time data is necessary for swift actions towards that risk.
This will help enterprises to reduce the impact of unexpected sudden risks or even eliminate it from root based on the severity.
These 5 steps form the structure of the risk management as well as assessment that can help you reduce the impact of the risks or even eliminate it by root.
Try this framework for your business risk management strategy and let us know how it goes for you.
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