Indexation Clause in Reinsurance Policies
A reinsurance contract between a ceding insurer as well as a reinsurer can last for a long period of time. A lot of the time, claims are not paid immediately. Instead, claims are paid over a long period of time. Such types of claims are called “long-tailed claims”. The problem here is that the reinsurance […]
The Cost Structure in the Insurance Industry
Insurance is one of the most regulated industries in the world. Also, there are multiple players which offer every type of insurance. As a result, the competitive pressures are very high. This ensures that the insurance companies are not able to charge exorbitant premiums. Almost every insurance company across the world is a price taker […]
The Advocacy versus the Activist Functions of Nonprofits
The Advocacy versus the Activist Role Non-profits around the world typically are divided into those that undertake grassroots activism and those that advocate ideological positions and those that combine these two aspects to work for the betterment of society. This means that many nonprofits like the Red Cross and Oxfam are activist and advocacy oriented […]
Why Corporates Must Address the Gender and Racial Pay Gap as Part of Diversity Efforts
How Corporate America is Turning Rainbow to Become More Diverse Diversity is the buzzword among corporates and business leaders in recent times. Not a day passes without some prominent business leader or CEO (Chief Executive Officer) of a major corporation declaring their intent to have a more diverse organization and to be more inclusive towards […]
Change Management: Why the First 100 Days Targets are a Myth ?
How often we hear of business leaders and CEO’s who have just taken over proclaim that they would undertake radical change in the first 100 days? How often do we also hear politicians and other personalities promising the moon within the first 100 days? Of course, we don’t get to know how many of these […]
In order for businesses to run smoothly, risks need to be identified and managed. This is especially true in our increasingly volatile global economy.
The risks involved, for example, in project management are different in comparison to the risks involved finance. This accounts for certain changes in the entire risk management process.
However the ISO has laid down certain steps for the process and it is almost universally applicable to all kinds of risk. The guidelines can be applied throughout the life of any organization and a wide range of activities, including strategies and decisions, operations, processes, functions, projects, products, services and assets.
But what makes a good risk management strategy, and what do organizations need to know to create one?
In this article, we will explore risk management and look at some real-world examples of organizations who implemented risk management strategies to stay ahead.
Risk management is the process of finding, analyzing, then managing risks as they emerge.
Managing risk is important for businesses to maintain stability and sustain their growth. But it also helps to protect their reputations. The only way organizations can manage risks properly is to understand what good risk management is and what it requires.
Risk management is essentially just the process of:
This may seem simple enough, but good risk management is vital to organizational operationality. A good risk management strategy will help businesses prepare for uncertainties, and protect themselves from potential losses.
The goal of risk management is not to get rid of the risk completely – this would be near impossible. Rather, the role of risk management is to reduce the potential damage of the risk, strategically manage the risk, and recognize the opportunities that the risk presents.
Ultimately, when businesses understand risk, they can use it to their advantage to increase growth and innovation.
How do businesses manage risk? With a good risk management process.
The first step to managing a risk is to identify the risk. A potential risk can originate from something external like:
Or, a potential risk may come from an internal source like:
How to Identify Risks
One way to help identify risks is to run risk workshops where you conduct brainstorming sessions and use data analysis. Create a risk register to record identified risks as they come up. Then, log what the potential impact on your organization would be for each risk, as well as how likely the risk is to occur.
Now, it’s time to assess the risks based on their likelihood of occurring and the impact on the organization if they do. This is a risk assessment. These tools help organizations to decide which risks need immediate attention and which risks can be monitored over time.
Risk mitigation, or risk treatment, is the way in which an organization deals with the risks it has identified. The purpose of risk treatment is to discover the best (or most cost-effective) way to deal with the potential risk. At the same time, keeping losses to a minimum and maintaining any operational or organizational objectives.
There are four main strategies for dealing with risks:
Risk management has no end. It is an ongoing process that must be continually carried out as risks evolve and new ones arise.
How can businesses monitor and report risks? They could set up dashboards to track Key Risk Indicators (KRIs) and hold regular review meetings to update stakeholders.
A strong risk-monitoring framework will help businesses to keep on top of threats and adapt quickly to challenges.
In order to manage risks, organizations need to communicate clearly with their stakeholders (investors, employees, clients, etc.). Keeping everyone up-to-date with current risks is the best way to guarantee a healthy and risk-aware business culture.
Businesses must then review their strategies to determine what worked, what didn’t, and how they can improve their processes next time. Learning from their mistakes can help organizations build more resilient risk-management processes for the long-term.
Let’s look at two real-world examples of companies that managed to implement new risk management frameworks successfully.
This luxury fashion house found that its reliance on global supply chains was becoming a risk. They mitigated this risk by implementing a framework called ISO 31000 Risk Management. The fashion house reduced profit volatility by 20% as a result.
How did they do it?
A multinational retail corporation faced notable financial threats after aggressive expansion into new markets.
The corporation amended its financial risk management framework to focus more on reliable risk identification, assessment, and proper mitigation. The corporation reduced its financial exposures by 20% and improved resilience and productivity.
How did they do it?
Risk management is not a “one and done” exercise. Rather, it is a continuous process that helps organizations to future-proof themselves.
When organizations identify risks and threats early on, they can assess their impact easily. Next, businesses can implement mitigation strategies that safeguard their operations, and ensure success.
In other words, when you integrate risk management processes into your business strategy, you become more able to anticipate challenges, deal with the risks, and go for opportunities.
Your email address will not be published. Required fields are marked *
