The Many Factors to Consider in Business Risk Management
Creating a risk management plan is central to the operation of any successful business. A truly effective plan will address all areas of possible risk to the businessí information, employees, physical assets, and finances. While it is not possible to predict all sources of risk, itís important to mitigate as many as possible to protect the company from damage, liability, and other sources of loss.
Business Risk Management Defined
A variety of different risk factors can affect the ability of a business to operate effectively. Risk management is a process by which the most important risks can be identified, prioritized, and mitigated or eliminated. The strategies used to deal with risks break down into four main categories. Getting insurance is one way; eliminating high-risk areas or reducing them are two others. Also, a company can accept the consequences of a risk and budget for it.
Identifying and Managing Risk
The process for identifying and managing business risk is fairly standard and consists of five basic steps. To begin with, identify the companyís risks assets. Next, measure, quantify, and qualify possible damages. Then, you must come up with strategies to limit the damage. Fourth, implement the strategies. Finally, the company and its risk managers must continue to monitor the risk to see if the implemented strategy is effective.
Business Risks to People and Property
Business risks can take a wide range of forms, which means that business risk management plans must cover an equally wide range of policies. On a very basic level, ensuring employee and equipment safety by preventing accidents is important. Disaster preparedness is also an important component of business risk management and should include things like fire, flood, and critical incident plans. Another important part of a risk management plan is making sure that data are backed up regularly and are secure so they cannot be accessed by unauthorized personnel.
Business Risks to Finances and Strategy
Risks to the financial resources are often treated differently from other sources of risk when coming up with a risk management plan. Financial risk management plans often include guidelines for how to make financial decisions. They also codify how much risk and what kinds of risks are acceptable for the company to take. Plans to handle strategic risks are similar in that they would lay out how decisions about how to make advertising, research, and development, and other business practices.
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Operational risks are risks that come from the way the business operates both internally and externally. External risks are things like changes in political climate, regulations, suppliers, and contracts. Internal risks include the possibility of the failure of internal systems or processes. Loss of physical assets to disasters like fire or flood is an example, as is loss due to the computer system crashing. A business risk management plan would also need to address human error, as well as fraud, theft, and other illegal activities.
Business risk management planning includes the consideration of a wide variety of risk factors, including those to people, property, financial assets, strategy, and operations. Itís an important precaution to have a plan in place for as many of these factors as apply to a business.