Risks are an inevitable part of any business. From business risks like the ever-changing business environment and financial investments to competitors, various types of risks pose a threat to every business and can haunt the business at any time, if not kept in check.
A business risk is an uncertainty arising due to a particular situation that could hamper business operations or cause financial losses to the company. Business Risk Management is the process of determining and mitigating the risks that may arise from a particular uncertain situation which has the potential to threaten the business workings.
The 3 step Risk Management process can be elaborated as follows:
The responsibility of identifying risks is of all the stakeholders from top-level CEO to lowest level employee. This process not only involves understanding strategic risks but also identifying operational risks leading to the bigger strategic risks. Drawing up a comprehensive list of all the risks from every member of the organisation will help in determining the risks associated with the business and the possible impact on every individual’s role. Classification of risks is done to consolidate similar risks and remove duplicate ones. The number of mentions and importance of the risks is also taken into account. Some of the possible risks are High Employee Attrition for Human Resource, Ineffective customer support for Marketing and Operations, etc.
For understanding the external uncertainties impacting the business, an effective PESTEL analysis can provide information of risks both in short term and long term. For example, with increasing regulatory actions in the tobacco business, cigarette companies face a tough political and social oriented risks which are going to impact them in the long-term.
The risks should be evaluated with the help of Risk Assessment Matrix understanding the probability of occurrence and severity of the risks. The established internal control measures to manage the risks are also assessed. The most important aspect of risk evaluation is understanding the number of mentions of the risk. Higher mention of risks denotes a higher relevance of the risks.
The initial stage of risk mitigation involves developing a comprehensive plan. Involve the senior stakeholders and key managers closely associated with the risk to develop a risk mitigation plan. Analyse the possible impacts of the risks and understand the internal weakness leading to increased risk exposure. Developing risk mitigation plan involves designing of operational activities to be undertaken to effectively mitigate operational risks and understanding its impact on overall strategic risks. It also involves reworking of the internal control measures to strengthen risk controls to avoid high impact on the business if the problem arises.
For example, for service companies facing the risk of low customer retention, the ineffective after sales support due to lack of customer-centric focus might be a cause of risks. The effective step at operational level would be the training of employees to adopt the customer-centric approach, re-aligning the internal operations and setting high internal control standards to manage the quality of the customer support. This would help mitigate the strategic risks of low customer retention. With VComply, manage your business risks to avoid any non-compliance costs and boost your business growth.
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