Risk Management

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.

1. Identification of risks
2. Analysis of the risks
3.  Evaluation of the risks
4.  Response to the evaluated risks
5. Monitoring and reviewing of the risks 

1. Identification 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.

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.

Source: https://www.stakeholdermap.com/risk/risk-register.html

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

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.