WHAT IS THE IMPORTANCE OF RISK MANAGEMENT IN BIG COMPANIES
Every organization faces the risk of unexpected, harmful events that can cost it money or cause it to close. Risks taken can also spell trouble, as the companies disrupted by born-digital powerhouses, such as Netflix, will attest. This guide to risk management provides a comprehensive overview of the key concepts, requirements, tools, trends, and debates driving this dynamic field. Throughout, hyperlinks connect to other Tech-Target articles that deliver in-depth information on the topics covered here, so readers should be sure to click on them to learn more.
Risk management is the process of identifying, assessing, and controlling threats to an organization's capital and earnings. These risks stem from a variety of sources including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents, and natural disasters.
A successful risk management program helps an organization consider the full range of risks it faces. Risk management also examines the relationship between risks and the cascading impact they could have on an organization's strategic goals.
Why is risk management important?
Risk management has perhaps never been more important than it is now. The risks modern organizations face have grown more complex, fueled by the rapid pace of globalization.
New risks are constantly emerging, often related to and generated by the now-pervasive use of digital technology. Climate change has been dubbed a threat multiplier by risk experts.
A recent external risk manifested itself as a supply chain issue at many companies. The coronavirus pandemic quickly evolved into an existential threat, affecting the health and safety of their employees, the means of doing business, the ability to interact with customers, and corporate reputations.
Businesses made rapid adjustments to the threats posed by the pandemic, but going forward they are grappling with novel risks, including how or whether to bring employees back to the office and what should be done to make their supply chains less vulnerable to crises. As the world continues to reckon with COVID-19, companies and their boards of directors are taking a fresh look at their risk management programs.
A risk management plan helps companies identify risk
It is important for a business to identify potential risks. When a business is aware of the potential risks that are associated with its business, it is easier to take steps to avoid them. Knowing the risks makes it possible for the managers of the business to formulate a plan for lessening the negative impact. Also, once the risks are identified, managers will be able to analyze them and make a logical decision regarding how to deal with them.
According to Huffington, there are four main types of risk about which a business needs to be aware.
Firstly, the Market risk is the risk that is associated with the potential for the value of the assets of a business to decrease due to external factors such as interest rates, foreign exchange rates, and commodity prices.
Secondly, Credit risk refers to the losses that occur when a debt that is owed is not paid to the company.
Thirdly, Operational risk refers to the potential of business losses that occur due to inadequate actions or failures on the part of the business or external factors.
Some reasons for operational risk include the following:
Client and business practices
Business continuity practices
Lastly, Reputational risk develops from the possibility of damage to the company’s reputation due to both internal and external factors.
Strugz as a legal firm can help you manage your business to minimize risk and know which risk is worth taking, which ones will get you to your desired goal, we are also a Business management and training consulting firm, with the right team to help your organization and train your employees on risk management.
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