When business is going well and everything is running smoothly, it is easy to forget to plan for things going wrong. But the truth is, not having a plan for unforeseen events and situations is one of the biggest business risks of all. Looking for potential risks and then putting in safeguards against them is what risk management is all about. The end goal is to ensure your business is prepared for worst case scenarios and can act early enough to prevent emergencies and minimise consequences.
Creating a risk management plan also helps organisations to identify risks that are worth taking to promote growth and success. If you can already see the obstacles ahead, you have time to decide what action to take to avoid them or make the most of the opportunities.
What is risk management?
Risk management is a process whereby organisations identify, assess, and treat risks that have the potential to affect their business operations and earnings. A success risk management plan helps businesses consider the range of risks that could be faced, and the relationship between risks and their impact on the strategic goals of an organisation.
Risks can come from both internal and external sources, with external risks being those not directly under control of management, including natural disasters, political issues, market upheavals, or supply chain disruptions. Internal risks can be security breaches due to negligence, or changes to the IT infrastructure. Other risks can stem from hazards that could cause physical damage to property or impact the health and safety of people. There can be financial risks about mergers, or pricing changes. Strategic risks include business decisions, changes to the economy, or inadequate cash flow.
Risk management structures
Having a risk management plan is more than just pointing out existing risks that are easily noticed. A robust risk management plan will also look at the uncertainties and predict the potential influences on the organisation, to allow a decision to be made between rejecting or accepting a risk. This acceptance or rejection depends on what the tolerance level of risk the business has already decided on.
Taking on risk assessment and management as a clear and ongoing process will then impact other decision-making systems, such as planning, cost control, and budgeting, and reduce the potential fluctuations and surprises that can occur without planning for risk. This is proactive risk management and leads to a more effective response to risks:
- Avoidance of risk: choosing to eliminate risk by removing the cause
- Mitigation of risk: reducing the possibility of the risk occurring
- Acceptance of risk: the risk may be unavoidable or bring about a positive outcome, so businesses develop contingencies to mitigate negative impact of the risk involved.
Creating contingencies requires a problem-solving approach, resulting in a detailed plan that can be actioned as soon as needed. This plan allows companies to handle any obstacles that will get in the way of success as soon as they arise, managing risk immediately rather than a delayed response that can result in a negative outcome.
Risk analysis process
Risk analysis is an approach that uses problem solving tools to work out the various risks for your organisation. You can then take steps to resolve them or mitigate their effects:
- Identify risk: looking at risks and situations that could potentially have a negative impact on the organisation, or positive risks, which could increase business value or damage a company if the risk isn’t taken.
- Assess the risk: A risk assessment includes looking at how severe the risk could be (negative/positive), if any existing measures could be effectively used, what actions could be taken to mitigate the risk, and how urgently action is required to take care of the risk.
- Treat the risk: Put in place controls or an action plan to prevent the risk from having a negative impact, or to maximise positive outcomes.
- Review the risk process: Identify any other opportunities or risks that could have been missed and develop responses for future risks.
Why does risk management matter?
Without risk management, an organisation cannot define its future objectives and goals, because without taking risk into consideration, then when a risk does materialise, it is hard to stay on track.
When companies consider and plan for all the potential risks in front of them, then they can work to protect themselves and put in place damage control. Alternatively, an organisation who knows and understands the risks can make informed business decisions as they have a clear idea of the risk they’re willing to take. A risk analysis provides a roadmap of the best path to choose to avoid pitfalls and reduces the more serious impacts.
Risk management also:
- Reduces the chances of legal liabilities, with a business strategy to follow and management teams on board
- Ensures the proper and appropriate insurance is in place
- Effective risk management reduces the chance of workplace injury and protects assets from being damaged
- A risk management plan protects and improves your brand and image, demonstrating social responsibility in situations that could be potentially hazardous to people or the environment.
The importance of risk management cannot be understated. A technology partner who has comprehensive experience in strategic IT planning and disaster recovery planning can be an essential ally in ensuring your business plan for growth is successful. Contact Bespoke Tech today to discuss how they can help you plan for and mitigate risk to your business.