Business Risk Management 101
Risk Management can be described as a continuous process of identifying, measuring, controlling and monitoring risk. Some risks occur during the ordinary course of business operations, while others are due to extraordinary circumstances. Regardless of an organizations’ business model, industry or size, identifying risks should be is a strategic aspect of business planning.
Once risks are identified, companies need to assess the likelihood and potential impact of a loss. This will enable them to develop a strategy to control losses and protect business operations, employees and assets.
The most common loss control strategies include:
- Risk Avoidance – Avoiding an identified risk is the easiest means to manage or eliminate a risk, but it also can be the most expensive means of risk management. Although avoiding risk is a simple method to manage potential threats to a business, the strategy also results in lost revenue potential.
- Risk Mitigation – Mitigating business risk is meant to lessen any negative consequence or impact of specific, known risks, and is most often used when business risks are unavoidable. One example of this is the implementation of virus detection software to mitigate cyber security risks.
- Risk Transfer – In some instances, businesses choose to transfer risk away from the organization. Risk transfer typically takes place by paying an insurance premium to in exchange for protection against substantial financial loss.
- Risk Acceptance – Companies retain a certain level of risk whenever they purchase insurance. The higher the deductible, the more risk you retain.
Monitoring risks is essential because risks change over time.
When properly applied, risk management is integrated into all business decisions, processes and activities. Businesses who successfully incorporate risk management within their decision making processes are making more informed decisions.