Could there be anything that doesn’t involve risk? On a daily basis, we are faced with various risks as we take part in different activities of life. Life is full of risks in itself, and there are so many risks that exist in our world today.
For businesses, risk is also a primary factor. There is no business, no matter how good or big it is that is not faced with risk constantly. All businesses face risks and it is their responsibility to control and manage the risks to be able to scale through and achieve their business objectives.
So, what is risk management?
Before we talk about what risk management is, I would want you to know what a risk is, as it concerns business. Business risk is the likelihood of a business making inadequate profit which may be a result of unforeseen circumstances or uncertainties. Such uncertainties can be changes in government policies, changes in consumer tastes, obsolescence, and more.
Risk management can be looked at in different ways, but it is simply the forecasting and evaluation of financial risks, and the identification of procedures to avoid or reduce their impact. It can also be the identification of potential risks to a business and taking out time to analyze them so that adequate steps can be taken to avoid or cushion the effect of such risk when it is unavoidable.
Risks can be managed in five major steps, which includes;
1. IDENTIFY THE RISK – The first step would be to identify the risk, where it might occur from and the likely areas the risk will affect if not controlled. These risks can be legal, environmental, economical or social. By identifying risks, it becomes visible to all and they are now aware of the risk that threatens the business activity.
2, ANALYZE THE RISK – After identifying the risk, you don’t just go to bed or celebrate that you just discovered a risk. By identifying a risk, it shows that there is work to be done, and this work is to be done in analyzing the risk. The risk is analyzed to know the potential damage it is likely to cause and the impact of such risk. Not every risk bears the same impact, while some may shut down business activities, some may just affect a small portion.
3. EVALUATE OR RANK THE RISK – It important to rank risks. As we all know, not every risk bears the same impact. Risk can be ranked by their level of impact, so the business can know which to prioritize and how to involve people or take adequate steps to work on it. A risk with minor impact may be ranked lowly when compared to a risk that may be detrimental to the organization.
4. TREAT THE RISK – You don’t just fold your hands after identifying, analyzing and evaluating risk. All these are done to enable businesses to know how to treat the risk. In treating a risk, it is either completely eliminated or the impact is reduced. It is important to note that in this process, it is better to treat risk which is a priority. That is, those which are ranked high and demand immediate attention. Of course, you know that this is the right thing to do.
5. MONITOR AND REVIEW THE RISK – In as much as it is advisable to try to avoid risks, or eliminate them completely. It is pertinent to note that some risks will always exist and they can’t be put off or eliminated. For such risks, a close watch is needed so that it doesn’t hit the business unaware and results in great damage.
Risk management is important for every organization, seeing that risks exist and may not be totally avoided. Steps can be taken as stated above to help businesses move on and grow despite the risks they face in carrying out their regular business activities.
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