Managing risk is a major aspect of running any business. If a company is able to manage any type of risk, as it arises, the overall business can be sustained. If unforeseen risks are not managed, it leads to decay of the entire business and eventually the company falls.
Every company must follow enterprise risk management (ERM), that is a process of planning, organizing, and controlling all the activities of an organization. When all business operation activities are carefully inspected, the risk can be predicted in advance, and necessary actions may be taken to minimize the adverse effect.
ERM is associated with any type of risk that may arise due to financial, strategic, or operational failures. Many ERM packages have been developed for use by organizations.
The risk-management ability of a business is now considered to be a main criterion for scrutinizing it. The ERM process that is followed by a company, is often analyzed by a board of directors and changes are made, as and when required.
For any business, this risk management process is crucial, as it determines the stability of the organization. The process helps the company to identify the risk, analyze the cause, and take counteractions to minimize the losses incurred. The ability to predict the risk determines the success of the process which requires careful monitoring.
The ERM process must be customized for each business, depending on the service that is provided by it. All the heads of company departments must be made to participate in planning the process.
In the initial stages, the influence of risks on the stability of a business will be high. When the process is perfectly planned and executed, they will have a lesser influence on the organization.
Understanding the Risks
The cause and the effect of the risk must first be identified. The historical performance has to be analyzed and it is essential to find out what has led to it. Based on this information, the current strategy of the company must be studied and future risks must also be identified.
Future returns of the company depend on identifying the risk. This is a crucial step in the process. Employees from various departments must be involved while identifying the potential risks. Department wise risk factors must be identified, so that the process is more customized.
Generally, organizations conduct meetings and interviews to identify risks. If the company is big and the number of risks is high, it is better to seek help from third party organizations, to plan their management.
Even though a company follows a process, it never attains the state of a risk-free business. There are always chances for some type of risk and when the company faces the same, it has to be analyzed carefully to decide on the action that is to be taken.
The company must plan the risk management process in such a way that maximum advantage is derived from any eventuality. The entire process of the organization must be monitored carefully and at regular intervals, to predict the types of risks which may arise.
The frequent ones that are faced by the organization must be documented, along with the steps taken. It is suggested that employees be educated about the risk factors and controlling measures.
The process must be protected, so that it doesn't collapse under any type of risk. When the organization faces a risk, it must be communicated to the shareholders to sustain their faith in the business.