What is Risk Management in Business?

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Risk management identifies, controls, and assesses all threats to business resources and growth.

Have you ever been in a situation where you are uncertain about the outcome of what you want to do but are willing to take the risk? 

Every critical step towards a big win involves risk. Risk is the probability of something unfortunate happening during an event. It is taking a bold step and unsure how this will turn out.

Just as in other aspects of life, risk is prevalent in business. When not properly managed, it can harm the overall business performance.  

Therefore, as a business owner, how do you brace yourself for impending risks? Here is where risk management comes in. 

ALSO READ: 3 Great Branding Tips to Grow Your Business. 

What is risk management?

Risk management

Risk management is identifying, assessing, and proposing solutions to business threats. It is the different processes and plans that help a business to fully grasp its risks and the cascading effect on its overall goals.

As a business owner, external risks like inflation, weather, politics, interest, and exchange rates are beyond your control. But internal risks like financial mishaps, reduced customer patronage, strategic management errors, legal liability, natural disasters, and uncertainties can be mitigated. Identifying and tackling possible risks in business is an essential skill in managing a business. 

“We don’t manage risks, so we can have no risk. We manage risks, so we know which risks are worth taking, which ones will get us to our goal, which ones have enough of a payout to even take them,” said Forrester Research senior analyst Alla Valente, a specialist in governance, risk, and compliance.

Risk management process

Risk management
  • Appoint a risk management team;
  • Conduct a thorough business survey to recognize aspects of the business that might pose a threat;
  • Access the likelihood of something going wrong;
  • Map out strategies on how to respond to this;
  • What is the consequence of something going wrong? How will you deal with it?
  • Create detailed strategies based on your findings;
  • Monitor the effectiveness of the strategy.

Importance of risk management

Risk management

1. Risk management saves time, effort, and cost.

The first step a company facing any risk would take is to order its employees to submit their observations and thoughts to the risk department. This task takes time and effort and is often carried out hurriedly. 

But with the risk management team handling this, employees are not burdened with the task of submitting risk data. As such, they can divert the time to their true role. 

Also, since the risk management team handles unforeseen risks, they can help prevent risk occurrence or recurrence.

It is safe to say that risk management has never been more important than it is now due to the diverse technology innovations. Most of today’s risks are related to digital technology. From breaches of information to fund manipulation, technology innovation has, in a way, increased the chances of business risk.

The risk management team worked with other team members to thoroughly research every aspect of the business. This helps to mitigate technology-related risks.

3. Risk management helps to reduce unpleasant surprises

Risk management

I recently watched a video on YouTube where a business owner shared the story of how her house caught fire, and most of her newly restocked goods went ablaze with the fire.  Risk can be an unpleasant surprise when there is no preparation at hand. The risk manager’s goal is to map out all potential risks and set strategies to manage them. 

4. Makes the job safer

Risk management benefits both the employee and the management. Since it helps to actively look out for aspects of the business likely to pose a risk, risk management guarantees job safety. 

Risk management is a form of insurance in itself. It helps to identify and prepare ahead for risks before it happens. This way, strategies are mapped out to handle the risk when they eventually happen—as such, having risk management strategies is imperative to business growth. You don’t have to wait until something happens before taking the required steps. 

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