WHAT IS ENTERPRISE RISK MANAGEMENT AND HOW TO IMPLEMENT IT IN YOUR COMPANY
Risk? There are those who will only think about it when they are facing it.
This would appear to be the thinking pattern of many companies that underestimate what is enterprise risk management and how it should always be addressed in advance!
However, in recent years companies have begun to consider the importance of the concept of risk in light of problems faced in the marketplace.
Management has discovered that in order to prevent company damage, there’s a need for good research and analysis that can forecast events before they happen.
This has led to the development of a series of models that provide the basic rules for risk management, encouraging especially in large companies a structure to combat eventualities.
But what is enterprise risk management anyway?
Enterprise risk management has become an essential element for protecting businesses, becoming a tool of competitive advantage for companies.
Adding to this, another positive aspect that arises as a result of the prevention and forecasting of corporate instability is the possibility that companies can avoid losses as a result of any crises.
If the company is better prepared to anticipate problems, it adds to its stability and value.
While these important aspects help you understand risk management, they still do not effectively answer your question: What is enterprise risk management ?
Risk management is the process by which risk is measured or estimated and strategies are thereby developed to prevent or mitigate it.
Now that we know what risk management is, let’s look at some points that can help you create a project.
Tips on how to manage risk
Simply identifying what risk management is will be of no use unless we know how to put it into practice.
Risk management is an ongoing process that’s subject to updates. It does not end with the initial identification of risks. Let’s look at some points that can help in creating a project.
Potential risks are connected to events that can cause problems when they occur.
Therefore, risk identification can start from the root cause of the problem or from the problem itself.
- Cause Analysis: The source of risk may be internal or external to the system subject to risk management. Examples of sources of risk are: company employees or weather.
- Problem analysis: Risks are linked to hazard identification (or threats). For example: the danger of losing money, the danger of breaching confidential information or the danger of human error, accidents or injury.
The most common risk identification methods are:
- Objective-based: Project organizations and teams have objectives. Any event that may endanger the partial acquisition of a goal is identified as a risk.
- Scenario-based: Any event that triggers an unwanted alternate scenario is identified as a risk.
In optimal risk management situations, risks related to a large loss and a high probability of occurrence are dealt with first. Risks with a low probability of occurrence and low losses are treated with less urgently.
Risk management often faces the difficulty of properly allocating resources.
Therefore, optimal risk management spends the least amount of resources in the process of reducing the negative effects of risk.
An example showing the importance of risk management
We saw in theory what risk management is, but nothing is better than a practical example to really get the idea.
As you begin to devise a risk management plan you should identify some components:
- The risk itself;
- The probability that it occurs;
- Its likely impact.
For example, you want to build a storage shed in an area next to an old tree.
- There is a risk of the tree falling.
- But how likely is that?
- And if it does, what kind of damage will be done?
For each listed risk you must rank it so that the most important ones are resolved quickly, while preserving the main goal of the project.
After listing and classifying risks, you must create an action plan to eliminate or mitigate risks.
With these techniques, you will likely have a much safer chance of implementing your risk management plan.
We hope that you’ve understood what risk management is and that you can quickly put this knowledge to work in your business.
As seen, having accurate and up-to-date information about your business performance is critical to being alert to signs of any impending risk.
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