Risk is the inherent occupational hazard associated with doing business. It is defined as any occurrence which can have a negative impact on one’s business, thus developing risk management plan for your business is crucial.
There are many types of risks and they vary from business to business.
Strategic, financial, compliance and operational risks are the most common types of business risks. They are also the most damaging. While risk can never be completely avoided, it can be regulated and managed.
The process of preparing, managing and mitigating the occurrence of risk is called risk management. To manage risk effectively, a risk management plan is prepared by specialists. This plan revolves around the following two processes:
- Reducing the probability of risk to occur.
- If it occurs, what strategies and steps can be adopted to reduce its negative impacts.
A typical risk management plan consists of the following steps.
Identification of Risk
The first step is to identify potential risks that can impact your business. This is usually done by adopting the following techniques:
- Assess the potential risks of each functional area separately. For e.g. the functional area of marketing can suffer from reputational risk.
- Review past risks and identify how they manifested and affected your business.
- Evaluate the external factors which can cause risk to your business.
- Have an across the board discussion with all employees for risk identification.
Once identified, categorize these risks and note them down in a document called Risk Register.
The second step is to assess the negative potential of the risk. This can be done by:
- Determining the likelihood of its occurrence.
- Determining the damage caused by its occurrence.
Risk assessment is done using the formula:
Likelihood of occurrence x damage caused
- The results of risk assessment are documented in a risk assessment matrix. This matrix provides an overall view of the potential negative impacts of the risk.
Manage the Risk
By now, risks have been identified and assessed. Logically, the next step would be to manage and regulate them. Risks are managed in a way that their harmful impacts are reduced in the most cost-effective way.
To manage risk successfully, the following strategies are adopted step by step.
- Avoidance of risk
- Avoid a risk either by altering the business process, complying with laws and standards, or by substituting a material. This is the most sought-after strategy in risk management.
- Reducing its impacts
- The second step is to reduce the negative impact and likelihood of the occurrence of the risk. This involves taking proactive measures such as providing health safety training to staff and updating emergency procedures etc.
- This strategy involves the redirection of risk to another party through insurance, subcontracting, and forming joint ventures.
- If all three strategies fail, businesses accept the risk as a last resort.
Monitor and Review
- The fourth step of the risk management plan involves periodic monitoring of the plan. The risk management plan should be vetted and evaluated by insurance providers.
There are multiple risks that endanger the smooth functioning of your company. We are rapidly moving towards a digitized world. While digitization improves the operational efficiency and brings in much convenience, it comes with a host of potential risks.
- Cyber theft, cyber extortion, identity fraud, and ransomware attacks are the most common risks faced by businesses nowadays.
To effectively manage these risks, we recommend you to take help of OutsourceMyIT. They offer risk management services for all cybersecurity problems. Taking the help of professionals is the first step to ensure your business’ security.