Risk Management-How A Company Prepares For Risks

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What is Corporate Risk?

Risks are involved in almost every phase of a business. Whether it is recruiting a new team or acquiring a new business to increase the market, risks can come in any shape. Most of the businesses strive to avoid financial uncertainty, strategic management errors, legal liabilities, natural disasters, accidents, IT security, etc.

The risk management department chalks a plan to reduce such risks beforehand and make a contingency plan ready. Foreseeing and understanding the risks are the prime functions of that team. It includes experienced professionals from different departments of a business so that every aspect of risk can be met with precision. The prime motive of this department is to mitigate the loss linked to risk and save the company from a huge financial burden ahead.

Importance of Risk Management

A business runs on an investment. The risks endanger the financial stability of a business. This is why every company must have a risk management section to fortify the future of a business by preparing resources or plans to tackle upcoming threats.
The other advantages are mentioned below:
– Creation of a proper work environment to make employees and customers feel safe and secure.
– Fortifying the foundation of a business and its operations.
– Reducing the level of legal liability and unnecessary risks.
– Plans to protect every entity, from assets to people, linked to the company.
– Establishing the insurance needs of an organization and reducing the number of premiums.

How can a company make it a brilliant plan? Virginia Mason Medical Center, Seattle, showed significant development in the risk management section. The authority dedicatedly increased transparency in the system and introduced excellent terms in the patient safety segment. It also made risk mitigation, reporting, and disclosure more transparent. This helped the patient
parties to understand the terms and act accordingly. In this way, Virginia Mason Medical Center witnessed a significant reduction in paying professional premiums and a considerable increase in reporting responsibility among the employees.

Steps involved in Risk Management

Statista shows the types of business risks a company faces across the world. From cybercrimes to regulatory changes, anything can turn out to be a risk for a business. Whether a business is big or small, here is how it can plan to meet risks with proper resources.

i) Context establishment
This is the first step of risk management where a team will figure out the circumstances giving birth to a particular risk and threaten the integrity of a company. These criteria will be used for the evaluation of risks. It will also help in structuring the analysis.
Raghuram G. Rajan, Ex-Governor-RBI, said  – “Not taking risks one doesn’t understand, is often the best form of risk management. Understanding the risks is the first step in risk management.

ii) Risk Identification
Risk can go undetected for a long period imparting too much harm to a company. Its identification is of prime importance. It is necessary to find out the extent of the negative impact of a risk or threat on business operations.

iii) Risk evaluation and assessment
Risk evaluation means evaluating the extent of possible loss and determining the risk exposure. Companies have a predefined risk appetite, that is based on the nature of business. After an evaluation of risk, decisions are based on whether the risk falls within the risk appetite of the company.

iv) Risk Response/Mitigation
This is the part of management where risks are ranked and steps are formulated to mitigate them. These plans are formed as risk prevention tactics or contingency plans.

v) Monitoring
After implementing the risk response, the management of an organization monitors the risk response and determines if the outcomes are as expected. If a risk response is not effective and the risk has not been mitigated, the management will go back to identifying another appropriate risk response.

Specific approaches to Risk Management

Once the risks are identified, the process should be implemented as chalked out. Stepwise implementation and monitoring will lead to apt mitigation of the risks and minimization of loss. The reaction of a company is also decided by the type of threat or risk it is facing/foreseeing.

i) Avoiding risks
It is obvious that all risks cannot be mitigated or met with proper resources. Some risks need to be avoided at any cost. Disruptive consequences can occur when every risk is considered to be eradicated.

ii) Risk reduction
Some risks cannot be totally mitigated. Only the impact can be reduced. The team will adjust certain aspects of a project plan or a business operation to reduce the threat level.

iii) Sharing risks
It can also happen that the effect of risks is shared between different projects and departments. Hence, this type of risk can be mitigated with partners, vendors, and stakeholders. Financial risk management is done with other entities in the same business.

iv) Retaining risks
This might sound bizarre to a common ear. Companies can stick to risks as they might be worth a fortune later. Companies will have to analyze the risk level and potential fallouts/consequences and then decide to retain them. In this case, the threats are calculated against the opportunities or rewards a risk can deliver.

Daniel Wagner, Founder-Country Risk Solutions, said – “Some risks that are thought to be unknown are not unknown. With some foresight and critical thought, some risks that at first glance may seem unforeseen, can in fact be foreseen. Armed with the right set of tools, procedures, knowledge, and insight, light can be shed on variables that lead to risk, allowing us to manage them.

Regulatory Standards

Every regulatory body of industry has set certain standards that companies have to comply with. Regulatory compliance has a particular section mentioned for risk management protocols. Internal audits, risk analysis, and other processes should be done regularly to stick to such protocols. Regulatory bodies such as the International Organization for Standardization (ISO) provide certain ways to reduce risk. The majority of clients and customers trust ISO-certified companies. 

Following these standards is mandatory for companies these days. There are many examples where companies gained a lot from managing risks excellently. Contingency plans and preparedness are the prime pillars of a risk management department. The benefits of proper risk management plans can save a company from unprecedented disasters.

25 thoughts on “Risk Management-How A Company Prepares For Risks”

  1. Ishan Phadnis

    Informative post, lot of information, inspiring sector to work in! Risk Management is the next big thing!

  2. 1. Identify risks
    What are your risks and how likely are they to occur? Some will cause major disruption while others will be a minor irritation. You must make an educated assessment of both the likelihood and potential severity of each risk to prioritise your planning efforts.

    2. Minimise or eliminate risks
    Once risks have been identified you need to either eliminate or minimise those risks. You should provide specific strategies for minimising risk for each of the six subgroups.

    3. Identify who has to do what should a disaster occur
    One of the simplest and most powerful tools for a speedy recovery from a disaster is a clear picture of, and clear directions about, who has to do what should your disaster plan have to be enacted.

    4. Determine and plan your recovery contingencies
    Recovery contingencies should be determined by the type, style and size of your business and by the extent of the damage.

  3. Identify risks. …
    Minimise or eliminate risks. …
    Identify who has to do what should a disaster occur. …
    Determine and plan your recovery contingencies. …
    Communicate the plan to all the people it refers to. …
    Prepare a risk management plan.

  4. This article is very interesting and tell us lot about the risk managment and the determination & elvaluation of the risk.

  5. VERONICA PREMANAND

    Different companies follow different methods and regulations to tackle risks that they may face in the future. Yet there must be some similarity that can be learnt as a basic level work as an initiator. How can miles education help me with that?

  6. One of the most valued topic amongst the coporates , risk management has a very wide application through many areas of life , In order to further explore as a career advancement , the Financial Risk Manager [FRM] could be a great course to consider strengthen the audit knowledge gained through CPA as risk management has a wide application in auditing

  7. Saksham Gupta

    Prevention is better than cure! This blog was very insightful for businesses to plan ahead for future contingencies.

  8. The blog mainly talks about ‘forecasting’, and how forecasting helps in reducing risk in the future. It’s a good one to know more about risk management!

  9. Well the blog has covered the points of how to prevent risk management it gave a crisp idea about the risks.The blog has explained like how a company faces these risks what steps do they take etc.It was indeed informative blog.Keep going Miles education we love to read your blogs.

  10. Akshai Krishnan H

    This is a good article. I think, it’s really important to allocate time and resources for preparing plans to reduce the likelihood of an incident affecting the business.

  11. Akshata Pandey

    I always wanted to learn about Risk management and this is the best explanation I have read. Thank you Miles. I will surely apply this knowledge in my life.

  12. This blog mainly talking about risk management how we deal with risk it can be any kind of risk related to business, or any business deal we should ready for any kind of situation.

  13. Yashwin Anand

    Thank you so much, Sir! This is indeed a great piece of information which thousand of me would have been longing to come across.

  14. Risk management is important to all companies without this a company would fail to achieve its goals and objectives this blog indicates the importance of risk management and the need for all companies to manage risk.

  15. One of the important topics in business, risk management has a very wide application through many areas of life, In order to further explore as career advancement, the Financial Risk Manager could be a great course to consider strengthen the audit knowledge gained through CPA as risk management has a wide application in auditing

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