Created: 07 June 2022

What is Risk Management?

Risk Management is the practice of early identifying any risks that may occur and the ability to successfuly analize them. Successful managing of potential risks can help your organisation to avoid problems that may cause some dangerous damages to the entire enterprise. Therefore, Risk Management is a very important matter that organisations should pay attention to. 

Keyword(s): risk management

The importance of Risk Management

The risks that modern businesses have to face are getting bigger and bigger, as the technology is evolving. Therefore Risk Management is becoming more and more important matter. Recently, the source of many difficult and new threats was the pandemic that brought many risks that were never faced before for organisations around the world. 

As the spreading virus became a real threat it affected the safety of the companies and their employees. Organisations faced a really hard task, that was to keep their people safe. They implemented changes and made proper adjustments, so that the risk of threat will not affect them. One of the biggest and most important aspects was introducing remote work, so employees had a chance to work in the safety of their homes. 

What is the difference between the Traditional Risk Management and the Enterprise Risk Management?

Traditional Risk Management is not as popular these days as it used to be. Just like the Enterprise Risk Management, it was created to successfuly avoid potential risks that could adversely affect the company's development. However, many experts say that when it comes to Traditional Risk Management, it is quite not enough. According to them, there is lack of well-developed mechanisms that are necessary to properly understand risk as part of an overall organisational strategy.

In Enterprise Risk Management, on the other hand, Risk Management is developed and implemented together with the business strategy and has many functions, creating one, coherent whole.

What are the processes of Risk Management?

Risk Management and the processes associated with it are defined in many collections of knowledge, which define the rules that must be followed by organisations in order to manage risk in an appropriate and effective manner. The ISO 31000 standard is one of the main known sources of knowledge, the guidelines of which have been developed in cooperation with the International Organization for Standardization.

The ISO Risk Management process includes these 5 steps, that need to be done:

• Identify the risk
• Analyze the risk
• Prioritize the risk
• Respond to the risk
• Monitor the results 

The main goal of these 5 steps is to understand the needs of our organisation and the factors that are extremely important to it and to create a set of efficient processes that will help in identifying and understanding the risks that may cause a threat to the entire organisation.

What are the benefits of Risk Management?

Managing risk in an effective and efficient manner can have a huge impact on the development of our company as well as its capital and profits. What are the main benefits of responsibly implemented risk management?

• Increased risk awareness
• Improvement of operational efficiency 
• Improvement of work safety 

Building a Risk Management plan

The Risk Management plan defines how we, as an organisation, will approach and manage upcoming risk. The plan should include information about the strategy, specific roles in the team and the resources that we will be using.

What should we focus on when creating a Risk Management plan?

Communication

All leaders should, on the basis of the developed communication plan, communicate the procedures and company policy related to risk to other people on the team.

Identifying the risk

Writing out and analyzing several possible risk scenarios to be prepared for any threat that may arise.

Risk assessment

An in-depth risk analysis will help us to determine the magnitude of the impact caused by a specific threat.

Avoiding the risk

On the basis of the analysis, the organization finds ways to avoid the risk, or to react quickly and withdraw from the threatening situation.

Risk mitigation

Once the risk is there, the organization begins to try to limit its spread to other business aspects

Monitoring and reviewing

Monitoring is aimed at measuring risk indicators and adjusting the strategy to the current risk situation.

Risk Management is an extremely important element of running a business. Properly conducted, it can protect us from any threats that could adversely affect the development of our company, or in some cases, even completely threaten the future of our organisation. In order to face risk appropriately, it is important to know the processes and rules that can help us. If you want to learn more explore our Risk Management courses!