Murphy’s Law states that if something can go wrong, it will. A risk is something that could go wrong in business, causing a potential loss or damage. In the context of a company, many things could affect the business and create a loss for the business. Starting a business is itself a risk as it involves investing money without the certainty of returns and the possibility of a loss. Companies that work on client projects, product development, and other such activities need to factor risk in their plan. This ensures they are ready to face any eventuality.
Risk management is the identification of risks that could affect a business, prioritizing the risks, and then deciding how to manage the risks. It involves risk analysis and risk mitigation. These processes are essential for a company and would help them understand what risks could occur. This helps them to be ready with plans to take action as and when they encounter such a risk.
Why should you be Bothered about Managing Risks?
If you are working on a project, you need to identify possible risks at the planning stage. If you feel the risks are too many and not manageable, you may decide to abandon the project. Not carrying out a risk analysis and then leaving the project at a later stage will be disastrous. This explains why risk management is essential.
Risk management helps you identify risks in advance so that you are ready to take them on when you face them. You can have contingency plans to tackle risks. Risk management helps you plan for major changes that you carry out, like change in technology, changes to take on the competition, changes to be in line with Govt. policy, etc. These are the reasons why you need to be bothered about managing risks.
How to Manage Risk?
To manage risk in a business, the first stage is risk analysis. Let us look at this process.
A) Risk Analysis
To carry out risk analysis, you need first to identify threats that could affect your business. Threats that affect a business could be of different types:
- Natural threats like earthquakes, floods, etc.
- Human related risks like an employee quitting, sudden illness of a key employee, or death.
- Financial threats like a stock market crash, recession in the economy, etc.
- Political risks like unfriendly government policy, new taxes, etc.
- Project threats like time overrun, budget overrun, quality issues.
- Technical threats like problems adopting new technology and technical failures.
- Reputation threats like customer complaints, legal action, and loss of market reputation.
- Procedural threats like fraud, failure of control systems, etc.
Once the threats relevant to a project or activity are determined, you need to identify the risk impact, probability, and value.
Risk impact is what would happen if a risk occurs. You can rate the risk on a scale of 1-5 to determine its effects. A key employee suddenly going on leave may lead to an impact of 2 on a 5 point scale, whereas an earthquake may cause an impact of 5.
Risk probability is assessing what the chance that a risk may occur is. Probability can be decided on a 3 point scale, with 0 – not probable, 1 – may happen, 2 – most likely to happen and 3 – Will happen.
You can calculate risk value as Risk impact x risk probability.
Depending on the risk value, you can prioritize to decide which risks need action.
B) Risk Mitigation
Mitigation refers to the action taken for risks. You may choose to do either of the following:
- Accept the risk as you cannot do anything to prevent it, for example, war.
- Avoid the risk by taking measures, for example, fire protection measures to avoid a fire.
- Share the risk with other parties, for example, insurance.
- Control the risk by taking action. The action can be preventive to ensure the risk does not occur, for example, have a backup for key employees to do their work. The action can also be corrective to fix a problem that has already occurred.
Risk management thus involves risk analysis and risk mitigation. A structured approach to handling risks can help an organization function smoothly without being worried about problems that may occur.
Learning Risk Management
Risk management is vital for a business; hence, all key staff needs to be trained on this critical subject. Online academic courses on Risk management can be helpful to understand this subject and get certified for it. Doing online programs are beneficial as they are convenient for busy executives.
You can undergo Online training courses on Risk management from a leading training provider like Coggno. You can undergo Coggno’s courses on risk analysis and management. Coggno offers various courses that you can go through before deciding which is suitable for you. Completing the course online enables you to acquire critical skills related to risk management.