What is risk management?
Risks can come from anywhere and organisations across all industries face them. What matters is how you deal with them, which is where risk management comes in. But exactly what is risk management?
This blog will take risk management back to its basics, explaining what it is, the different types of risk management, and why it is so important for you and your organisation.
So, what is it?
Risk management is all about identifying, analysing, and evaluating risks. By anticipating the threats and problems your business could come up against, you will be better prepared to face them. While risks often appear unexpectedly, effective risk management helps you plan as much as possible and be ready to act should they occur. Essentially, it’s about preparing for the unexpected and reducing the detrimental effect that risks can have on your business by understanding them and being equipped to manage them.
‘risk management n. the forecasting and evaluation of risks in business and commerce, combined with the identification of procedures to avoid or minimize the impact of such risks.’ - Oxford English Dictionary
What are the types of risk management?
Unsurprisingly, one of the most significant risks businesses have had to face recently is the pandemic and the changes it has created, including remote working, business closures, and financial difficulties. But there are many types of risks beyond this – big and small, internal and external – that could impact your organisation. For example, risks can affect:
Operational risk management refers to the oversight of risks that could occur if any internal day-to-day operations of an organisation go wrong. As such, the scope of this type of risk management is broad. It covers employees, business systems, processes, products, and more.
You will need to assess your organisation’s strategic goals and ensure you are aware of any potential problems that could arise from them. By ensuring that you are doing things right from the get-go, your business is more likely to achieve its aims.
Being aware of risk-based performance can improve your business operations and further help you achieve strategic objectives. Performance management involves monitoring KPIs, analysing changes in performance, and promoting improvement by setting individual and team goals that relate to your organisation’s overall strategy.
Financial risk management is all about identifying, assessing, and evaluating the risks that may affect the financial operations of your organisation. This can help to protect your organisation’s assets, such as by minimising losses.
Compliance risk management helps you stay informed with regulatory and legal requirements and react quickly to any changes. It can also ensure your organisation’s compliance by implementing measures such as best practices and staff training, as well as keeping you up to date with industry standards such as ISO 31000.
Failing to prepare for risks has the potential to damage your organisation’s reputation if things do not go to plan. Taking the steps to implement a risk management framework that oversees all areas of your business is therefore of the upmost importance to protect your reputation.
Each of these risks discussed can overlap and impact one another, potentially affecting every area of an organisation. Enterprise risk management can help you to see these risks, and more, from all angles. By providing you with full visibility, it can assist you in making informed decisions and controlling the threats that could impact your organisation.
The importance of risk management
Now that we have covered some of the types of risk management that your organisation can implement, let’s summarise why the importance of risk management cannot be overstated. It can:
- Provide you with thorough oversight to understand the state of your business
- Reduce the chance of risks occurring, lessen their blow if they do happen, and help you manage any fallout
- Create a safe working environment and protect people, operations, and assets from damages, loss and more
- Help you make good decisions quickly, be confident in business strategy and assist your organisation in meeting its goals
- Save time, money, and resources
- Protect your reputation and safeguard the future of your organisation
The benefits of risk management solutions
Risk management software provides a range of benefits that can help you maximise your organisation’s risk management efforts. Digital solutions can give you greater insight and integrate risk-awareness throughout your organisation, as well as automate time-consuming processes, help you comply with regulations and standards, and identify risks early on.
Now that you have an answer to the question ‘What is risk management?’, find out more about how to choose the best risk management solution for your organisation.