What makes risk management critical? Well, business that comes with no risk is no business at all. It is like the side effect of a medicine. It is impossible to think of the medication without the side effects. Risk being inhered into a business and intricately woven into it; it is necessary to understand why you must keep carrying out risk management throughout your business’ lifetime. This places risk management right up there at the very top as among the most crucial elements of a business.
Management and business experts have propounded the theory that risk can only be managed or contained, and never eliminated. This is the extent to which risk is bound to business. The enormity of risk management can be gauged from the fact that we only hear a term such as risk management, and seldom risk elimination. This indicates the inescapability of risk from a business.
Carrying out risk management throughout the business lifetime is the key
Among the most important aspects to keep in mind about risk management is that it is not something an organization does at some point of time and forgets. It is something that should be carried out every now and then at every point of the business lifetime. Another core point related to this fact is that risks are never single or static. You could face several risks, connected to each other or not, at one point of time.
Further, risks keep changing from time to time. As one risk gets managed, another could spring up. This explains just why as an organization, you must keep carrying out risk management throughout your business’ lifetime. There are very many core reasons for carrying out risk management during the lifetime of the business whenever the occasion demands it.
Understanding the risk is the first step
Risk comes in various forms, shapes and sizes. Anyone who understands a business should start by understanding the risks in it first. Risk could be either relative to the business or the industry or it could be specific to the organization.
Any business is prone to what may be called general risks. Like mentioned, it is a risk that comes with an activity involving a certain kind of business. Irrespective of the nature, size and reach of the business or its market, there are risks such as market, changing consumer tastes, shifting market size and trends, geographical location and so on.
And then, the specific ones
In addition to the general risks that come with any business, a business has to also take into consider the risks that are specific to it, regardless of which industry it is in. Some of the specific risks that come to mind are:
- Do our employees carry the right skillsets for this industry and this business?
- Do we have the right resources for growing?
- How many of our people could be off work on any given day across the business and what are our backup plans?
- What are our plans for raising funding through the investors and what if they fail to get convinced?
- What risk will befall our business if the top management quits?
- What is our disaster recovery plan?
- Do we have the resilience to handle major disasters and there any that our business is prone to, being located where it is?
Management experts pin down these risk management principles into these main elements:
- Understanding or establishing the risk
- Identifying them
- Analyzing them
- Evaluating how to manage them.
Do it before it is late
The key to risk management is to not only understand that you must keep carrying out risk management throughout your business’ lifetime, but that you must act before the risk happens. This is where the business’ ken to handling risk management lies. The organization that does this is one that has understood its business best and is ahead of the rest. What happens when risk management is applied after the risk has occurred is that the severity is hardly reduced, while risk management done before the onset of a risk ensures that the risk is contained, and its effects mitigated, which risk management truly is essentially all about.