In the corporate world, Risk Management is simply the forecasting and evaluation of all kinds of possible risks to minimize their impact and keep the business afloat. The dynamic business environment of today has exposed companies to threats and dangers of all kinds. Today, risks come in all forms – financial uncertainty, legal liabilities, management errors, natural disasters, and other accidents. To add to these are the cybersecurity threats that put all the crucial data and IT infrastructure at risk.
Naturally, companies now heavily invest in setting risk management strategies to mitigate these risks. All businesses – whether big or small – face the consequences of unexpected dangers and threats and therefore invest in risk management plans. By having a foolproof risk management plan in place, organizations ensure that they can identify, plan, and prepare for rainy days. This way, the organizations can safeguard themselves in the long run from critical risks.
As a result of this, risk management is one of the areas where companies actively hire talented and skilled candidates. If you’re an MBA aspirant, you should know about risk management as a field and all the opportunities you get while working with risk management strategies.
All in all, by working on seamless risk management strategies, you help organizations:
- Develop confidence in their business decisions.
- Establish processes and procedures to avoid threats.
- Corporate governance principles that focus specifically on risk management.
- Create a safe and secure work environment for everyone involved.
- Decrease legal liability while increasing the stability of all business operations.
- Stay protected from detrimental events.
- Establish a solid insurance plan and save on insurance premiums.
Tried and Tested Risk Management Strategies
Here’s a five-step risk management strategy that can act as a skeleton for all the different risk management projects you embark on.
Step one: Identifying the Risks
Generally speaking, the four main types of risks that a business needs to protect itself from are operational, financial, and strategic risks. These include all the kinds of threats and worries that a company can face. The first important step is always to identify the types of risks relevant to the business at hand. This is one of the first and most important steps of any risk management strategy. You can identify the risks by looking at the organization’s past experiences, internal history, consulting a professional, or performing extensive external research. Some other ways of identifying potential risks include group discussions, interviews, focus groups, and more.
Once you have organized the business risks as per their categories, it becomes easier to analyze particular risks in more detail and be prepared for them.
Step two: Analyzing the Risks
In many risk management cases, problem resolution requires identifying the problem and finding a relevant solution. However, before figuring out the best methods for handling risks, businesses need to locate the precise cause of these risks.
For that, they need to ask the important question – “what led to such a severe threat and risk, and how could it influence the business?”
When a risk management strategy is put in place, one of the essential steps is to map the different risks to different policies, documents, processes, and procedures. This means that the system already has a mapped framework of risk that then evaluates and analyzes the risks and lets you know the far-reaching effects of each risk.
Some critical questions that you should consider in this step include:
- What is the most negative thing that can happen?
- How will it affect the organization and its functioning?
- What can you do to resolve it?
- Can something be done to ensure that this never happens in the future?
Step three: Evaluating or Prioritizing the Risks
Once you have analyzed all the different kinds of risks using the mapping framework, it’s time to prioritize the different risks. This is an important step since you should first focus on high-priority risks that pose more challenges to a business. Other risks that might be more like inconveniences can be dealt with at a later stage. Knowing the levels and priorities of various risks will give you a better idea of how to go about approaching risk management.
Step four: Treating the Risks
Now that you have identified the risks, analyzed them, and ranked according to the seriousness, you need to eliminate or contain each risk as much as possible. For this, you will need to coordinate with experts from each department with which the risk is associated. Meeting with different team members is essential to understanding how to contain or eliminate the risks if they were to happen.
Step five: Monitoring and Reviewing the Risks
Unfortunately, there will always be some business risks that you cannot eliminate. Many risks will need to be continuously monitored and proctored, as risk management isn’t something that has a start and an end, but it is more of an ongoing process that is constantly changing and evolving.
The organization, its processes, and its work environment are constantly changing – and so should the risk management strategies and plans. If an organization becomes too rigid with its risk management process and develops a culture, so to say, it will face difficulties in the face of change.
Now, let’s look at some of the most used approaches to risk management.
Approaches to Risk Management
Once the risks are identified and the risk management strategy has been implemented, different approaches can be taken for different kinds of risks – depending on their severity and effects on the business.
Keep in mind that each risk tends to be unique, and you may need to take a fresh approach for new risks. That said, it is still good to know some of the more used approaches to risk management.
1. Risk Avoidance
Risk avoidance isn’t turning a blind eye to the advent of risks. Instead, it is ensuring that you are avoiding risks from happening. Prevention is better than cure, and that’s what risk avoidance tries to live by. A risk avoidance approach works by deflecting as many threats as possible to avoid all potential future disruptions, costly damages, and downtimes to businesses.
2. Risk Reduction
Tweaking some aspects of different project plans, company processes, and even tech infrastructure can help in reducing certain risks. By doing so, companies can safeguard themselves from future threats. This is a great strategy that can be used to make the business processes much more efficient.
3. Risk Sharing
Sometimes the best approach to risk management lies in sharing the risk across different customers, vendors, departments, and external organizations. This works by figuring out where the risks are shared and working on solutions collaboratively to mitigate and manage risks.
4. Risk Retention
One of the primary reasons for arranging different risks in the priority level is determining whether some risks are worth it from the business perspective. That priority list comes in handy for this approach by helping companies understand whether or not they even need to retain some risks. For example, in case the level of severity of a risk is less than the efforts and time it would take to manage it, it’s better not to retain that particular risk, and so on.
Risk management is and will continue to be an essential arm of any organization. As we march towards an even more data-fueled world, these risk management strategies and techniques will shift more in the data realm, and managers will have to doubly ensure the safety and security of all the organization data.
Because of this, risk management is also one of the fields that are constantly on the lookout for experts and skilled professionals. If you have the required qualifications and experience, you can build a solid career in risk management.
If you are keen on upgrading your career with an Executive MBA course, upGrad is offering the Online MBA Program in collaboration with the Dekin Business School. The program has been designed to stand at par with the best on-campus Executive MBA programs across the globe.
If you are a fresher but are interested in risk management, you’re in the right place. At upGrad, we offer an array of globally recognized MBA Courses that have helped students across the globe establish a firm foot in the world of business management. Check out our courses, go through the curriculum, and enrol in the one that fits your needs the best. Experience quality education, supportive peer groups, and motivating career assistance with upGrad!