Business Risk Management: Ways to Tackle Potential Business Risks
What is business risk management? Business risk management is a subset of risk management that is used to examine and understand the risk occurring due to changes in the processes, systems, or other business operations. A business risk framework identifies, tracks, prioritizes, and addresses risks to minimize adversities from unexpected events. Companies can gain the [...]READ MORE >>
What is business risk management?
Business risk management is a subset of risk management that is used to examine and understand the risk occurring due to changes in the processes, systems, or other business operations. A business risk framework identifies, tracks, prioritizes, and addresses risks to minimize adversities from unexpected events. Companies can gain the ability to make more informed risk-based decisions with the help of business risk management plan.
With a business risk management plan, businesses can prepare for the unexpected by minimizing risks and extra costs before they happen. By having a risk management plan in place, companies can also save money and make the organization’s future secure.
Business risk management process
- Identifying risks – Identifying the evolving risks by analyzing internal and external factors that affect the key business objectives.
- Analyzing risks – It includes the standardization and creation of probability distributions of outcomes for each material risk.
- Responding to risk – Once potential risks are identified and analyzed, an appropriate strategy needs to be incorporated to address the risk. This is done either by establishing new processes or eliminating the risk, depending on the type and severity of the risk.
- Monitoring risk and opportunities – The final step in a business risk management process involves continually measuring the risks and opportunities of the business environment. Companies must also keep a check on the performance of different management strategies.
Business risk management challenges and how to overcome them
Speed of information
In an era where news and information travel faster than wildfire, businesses do not have the luxury of time to undertake decision-making and formulate strategies as a part of business risk management once the news of a risk event is released. In several cases, a single risk event is attached to other unrelated risk events and when combined it may rapidly begin to erode the organization’s reputation and goodwill. To address such situations, some organizations are working proactively to consider their organization’s responses and business risk management strategies more robustly and well in advance of an actual event. Having different response playbooks that have business risks management strategies and responses identified in advance helps them to quickly respond to risk issues and diffuse some of the adverse effects on a timely basis.
Complexity of business
Cyber threats, disruptive innovation, regulatory shifts, and changing social demographics may trigger significant risks for an organization. Furthermore, these risk drivers may be related to or can trigger other risks, adding to the complexity of the business risk management challenge. Despite this, the top management in most companies fail to recognize the value of embracing a more holistic and team-based enterprise-wide approach to risk assessment and mitigation. To overcome such setbacks, some organizations are rethinking how they approach risk identification and assessment to find ways to bring together the collective minds of a number of individuals to think through potential risk drivers explicitly and proactively. This is done based on the perceived benefits of putting several minds to work when identifying and assessing risks. It is essential to have varied perspectives on complex risk issues in order to face the realities of today’s complex business environment.
Integration of risk oversight and strategy
Some organizations may experience a disconnect between their organization’s business risk management and strategic planning activities. In many companies, business risk management is viewed as a compliance or regulatory activity. This means that often risk management in organizations are transferred to a lower level, non-strategic position. As a result, the organization’s business risk management efforts are often inadequately integrated with strategic planning. To address this challenge, rather than starting off by analyzing what drives value for the organization, companies must first understand what risks are on the horizon. By starting the conversation with what is strategically important to the business and then asking what might prevent that from succeeding, business leaders will be able to identify how business risk management can be positioned to provide strategic value.