Understanding Risk Management for Your Company
Lurking in the shadows there are many threats capable of targeting an organization’s capital and earnings. Such attacks on organizations are easier than ever in this technological age where threats targeting an organization’s finances can easily be done through cyber-attacks.
This is why all companies and organizations make risk management policies and procedures a part of their business practices thereby minimizing possible threats and the effects they may have on the organization. In order to be beneficial to an organization risk management has a standardized strategy that helps to minimize threats an organization faces.
What is Risk Management?
Stemming from a wide variety of sources, threats to an organization that could affect financial resources are thwarted with risk management. Risk management is the active process of identifying, assessing, preventing and minimizing the effects of a threat on an organization’s capital and financial earnings. These threats that risk management addresses are usually legal liabilities, strategic management errors, on-the-job accidents, and costly natural disasters.
For companies that went digital, data breaches and cyber-attacks are additional threats that must be accounted for using risk management strategies. With so many possible threats companies can face, they are obligated to create a risk management plan following the risk management standards set forth by government institutions that are designed to help organizations identify threats, assess areas in which an organization may be vulnerable, reduce risk, and implement risk reduction procedures (Rouse, 2016).
Risk Management Strategies
Making it easier to do, risk management has standardized strategies that are broken down into five simple steps all organizations are able to do. The risk management strategies are as follows:
- Identifying Risks: A company identifies current and future risks that can potentially harm specific company projects and/or processes.
- Risk Analysis: After a specific type of risk is identified the chances of the same risk occurring again, and the potential consequences, are calculated.
- Risk Assessment: After identifying the risk calculating for repeat occurrence and consequences, a company then determines the acceptability of the risk and whether or not the company is willing to take the risk of a repeat occurrence.
- Risk Mitigation: At this stage companies assess their highest priority risk(s) developing a plan to minimize the chances of their occurrence. This stage also includes the creation of and contingency plans in the event the risk does occur.
- Risk Monitoring: The follow-up on potential risks, and plan to monitor new and currents risks. This step also evaluates and updates the risk management process accordingly when new risks occur.
These five steps are the risk management strategies that nearly all organizations follow to identify, prevent, and minimize risk to an organization (Rouse, 2016). Some companies are capable of performing risk management strategies on their own while others employ risk management firms to assist in identifying, analyzing, mitigating, and monitoring risks to an organization. They further assist in ensuring an organization has in place properly worded policies and procedures to reduce a potential risk’s impact on an organization’s net income.
When a risk does occur risk management firms work with an organization’s board members and legal counsel with the goal of minimizing the risk, transferring the risk, or in worst case reducing the financial loss suffered when a risk does occur (Ncontract, 2018).
If an organization has had difficulty in the past with risk management it can be advisable to seek the aid of a risk management firm for the purpose of effectively performing risk management strategies to safeguard the organization’s financial assets in the present and future.