Risk Management Process Articles | Risk Management

By: Akhil Shahani

How often have you regretted not taking simple precautionary measures which could have prevented a sizable loss or inconvenience in your business? Whether it's ensuring that the anti-virus software is updated or the fire alarm system is in place, most businesses have a need to protect themselves against unpleasant circumstances. Small wonder, that management of risk is a scientific and very critical business process.

Risk is defined as the probability of something happening that will have an impact upon your business. It is caused almost exclusively by people, processes, procedures and natural events. When there is a possibility of loss, destruction, injury or disadvantage, it is termed as risk.

Risk Management is a continuous process of planning risk control. It involves a careful examination of what you can do when something goes wrong, and understanding whether you have taken enough precaution or should do more to prevent harm.

The following steps will help you manage risk in your business.

Identify risk: It's time to wake up and smell the coffee. Start by examining all likely sources of risk. Think of it as a "what if" analysis. Ask your employees about the major risks they face in their functional areas, and what remedial measures are in practice. You can do this through brainstorming sessions, random inspection or audit, conducting a SWOT analysis and so on. This will enable you assess your company's level of preparedness to manage risk. Books such as "The Risk Management Process: Business Strategy and Tactics" and "Auditing the Risk Management Process" from have a wealth of information on this subject.

Analyze risk: This is one of the major steps in any risk management process. Having identified the risks, you need to evaluate and prioritize them. Risks that have an impact on the ability to continue business, financial well-being or the image of the company, are naturally the most critical. Others like an unanticipated interest rate change or a strike at your local bank will certainly have an impact, but are still manageable.

Reduce risk: While you can never avoid risk completely in your business, you can certainly mitigate it. Hence, it is sensible to institute suitable risk limiting measures. While you may argue that higher the risk, higher the return, it's important to ensure that you take only calculated risks in business.

Decide on a plan: Since many technical solutions are available, you need to select a suitable risk management process and implement it thoroughly. Choose the most appropriate strategy for your business taking into consideration the cost and time required for implementation and resultant benefit.

Review the program: Your risk management process has to be constantly reviewed in order to ensure that it serves the desired objectives. Set aside a budget for periodic upgrades.

Create awareness: This is possibly the most important yet neglected part of the risk management process. There's no use in having an elaborate plan, if no one knows about it. Ensure that there is adequate communication to the staff about the procedures to be followed in a situation of risk. This is particularly important during times of disaster, like an earthquake or fire.

The risk management process is an ongoing one, and must stay in sync with your business' life cycle. All successful companies have a risk management program in place, for eventualities ranging from natural calamities to security threats. Make sure your business is well prepared to handle any unfortunate circumstances.