Introduction
Every organisation
needs to take decisions about their operations more frequently. In order to
take decisions, accurate information is a must. In order to have accurate
information, past, present and future data must be carefully evaluated, and
turned them into information. In this process, assuming that management
information systems are effective, past and present data can be taken and
evaluated with greater reliability. However, it is really hard to predict
future due to uncertainties in the economies all over the world.
World has already
become a universe village. Every single information is quickly communicated to
everyone within seconds and decisions are taken based on information by
concerned parties. Therefore, awareness about changes is essential to be
succeed in the market.
Sometimes organisations
plan out the future well. However, the actual results will be totally different
with the original plan. Mostly results are not favorable as determined
initially. This happens frequently. When the actual result differs from the
expected result, it is called risk. Risk is occurred mainly due to uncertainty
in the environment. This may be due to internal or external uncertainties. In
some cases actual results are favorable than expected results. This is also not
a good situation. This means that there is a problem in planning or its process.
Due to the uncertainty
in the environment, risk management is so critical to every organisation
regardless on its size.
Risk
Management
Risk management is the
process in which risks are identified, analysed, evaluated, responded and
monitored and reviewed.
Therefore, there are
mainly five steps in the risk management process.
- Identification of risks
- Analysis of the risks
- Evaluation of the risks
- Response to the evaluated risks
- Monitoring and reviewing of the risks
Before
identifying the risk, organisation has to clearly define the vision, mission,
goals and objectives of the organisation. Thereby, the direction to which it is
directed can be clearly identified. After that environment should be screened.
For this there are different tools can be used such as SOWT, PEST etc.
According to literature,
there are external drivers and internal drivers to risks.
This article is not
plagiarised from any available source. However, this is written after reading
some of books, articles published by professional institutions and articles
published by different authors on web pages. All the pictures have been
downloaded from google image and all the picture credits must be directed to
respective parties.
Organisations
have to carefully analyse their internal and external factors and need to
identify the risks. When you identify any risk, better to document them. For that
risk register can be used.
Example: Garment
manufacturer engaged in importing raw materials and exporting its output may
expose to foreign exchange risk due to drastic fluctuation in the foreign
currency. Due to change in current tax regulations, operations may be
vulnerable to operational risks.
2.
Analysis
of the risks
Organisations
then need to analyse it risks. Thereby organisations will be able to understand
how likely the identified risks are occurred. This will be a complex process. However,
when there is a comprehensive system to analyse the risks, exposure towards the
risks can be mitigated. Therefore, this is conscious process and alertness is
very critical in this process. When analysing the risk, probability of occurring
the risk has to be taken in to consideration.
Thereafter,
each risk must be lined with its consequences. Thereby, organisations will be
able to understand what could go wrong.
3.
Evaluation
of the risks
After
the step 2 is done, analysed risks have to be ranked based on its magnitude.Thereby
organisations will be able to decide what actions are taken if any risk is
occurred. Simply this is a precautionary stage where companies evaluate viable
options to face or mitigate risks.
4.
Response
to the evaluated risks
Once
evaluation is done, organisations have to plan for their responses to the
evaluated risks. When responding to the risks, being awaken is so critical. Every
risk point has to be responded carefully. Otherwise failures may be huge and
going concern of the business will negatively be affected.
There are various ways of which risks can be responded:
a. Avoid the risks
b. Transfer the risks
c. Reduce the risks
d. Accepts the risks
e. Monitor the risks
5. Monitoring and reviewing of the risks
As the final step, organisations have to monitor and review the risk throughout. Reason is that taking an action against any risk does not mean that the particular risk has been gone. Therefore, it has to be monitored and reviewed with due care in order to ensure that future residual risk are not occurred.
Maintaining risk register is much important. Thereby, organisations can easily be able to monitor and review the risk that they come across during the course of life.
Note: A Risk Register is a management tool which uses to record or document risks, and remedies taken to manage each risk. The Risk Register is critical tool for managing risks. When risks are identified they are recorded in the register and actions are taken to respond to the risk.
Importance of risk management
As explained above, everyone has to take correct decisions in order to survive in the competitive world. When decisions are being taken, a lot of limiting factors are affecting. Those are mainly due to risks exposed by companies. Therefore, when there is a sound risk management function is in place, organisations will be getting benefits in various ways. Ultimate benefit would be that organisation will be able to achieve the intended purpose. Further following benefits will also be able achieve.
- Increase the competitiveness
- Decrease the wastage
- Increase the corporate image
- Establishment of clear pathway
- Smoothing the operations
- Decrease the threats of possible litigation etc.
Conclusion
As per the current trends, there are a lot of challenges faced by organisations in order to manage risks. Information spreads like nothing due to technological development. Competition in the market is so steep. Unethical practices are also taken place in the market, global economy is not functioning well, exchange rates of most countries are being depreciated against US Dollar, customers are wise than ever before.
Due to different reasons, angle of the risk is also changed. Now risks are coming from the market, globe, and regulators even sometimes inside the business. Therefore, every organisation should adopt sound risk management system in place to be in the market and achieve the intended purpose of the business.
Declaration