Risk management can be defined as ‘the identification, assessment, and prioritisation of risks’ (Wikipedia). It is a structured approach that allows businesses and other organisations to manage uncertainty.
The actions involved in risk management are therefore; identifying risks, assessing the risks identified, monitoring them, and taking specific actions to reduce their impact upon, for instance, the fiscal health of a business.
What are Risks?
Risks can come in many forms, including fluctuations in the stock market, accidents, natural disasters, uncertainty in financial markets, legal liabilities, the breakdown of relationships between business partners, companies, etc., changes to legislation and so many more.
This may seem like a lot to keep track of, let alone act upon should a risk actually become a problem that threatens the health of a business organisation, though not every ‘risk’ is a potential threat because not every business faces the same risks that other businesses do.
However, many risks, like uncertainty in financial markets for instance, affect most business organisations, though quite often to differing degrees. This helps to explain why many businesses wisely make good use of the risk transfer expertise industry experts possess.
Risk Management Plans
Every business should have a risk management plan that enables them to act quickly should an incident occur. This helps them to minimise the impact of an incident, for instance a lawsuit filed against the business or a change to legislation that affects the business directly, by acting quickly and taking a suitable action.
A risk management plan is therefore a document that is prepared in order identify and foresee risks that could impact negatively upon a business, estimate the impact of those risks, and create suitable responses that can be acted upon quickly in order to minimise damage, whether that is damage to the financial health of the organisation, their reputation, or their relationships with other companies.
As mentioned earlier, the types of risks that affect businesses varies from business to business. However, the process of creating a risk management plan is very much the same regardless of the industry or sector that a business is involved in.
How does risk management benefit businesses like yours?
As there are so many benefits associated with effective risk management, even small businesses will find it advantageous to create a risk management plan because they provide a basis and framework that empowers them to effectively manage crisis.
Here are five of the most notable benefits associated with effective risk management.
- Reducing outgoing expenditure by, for instance, reducing financial loss, limiting legal liabilities, preventing breakages, and minimising staff turnover
- Enhancing communication between departments, stakeholders, etc.
- Increasing the ability of the organisation to deliver projects or implement changes on time
- Improving strategic and business planning within the organisation
- Enhancing the ability of the organisation to grasp new opportunities quickly
Effective risk management helps to safeguard the health of a business organisation. Create an effective risk management plan to protect the health, prosperity and interests of your business.