How to effectively manage risk in business?
Risk is inherent in business. In order to eliminate or reduce situations that could threaten the existence of the company, it is necessary to identify them and find a way to effectively manage the risks. How to take care of business security to ensure stable development?
What types of risks are most common in business?
The most common business risks include:
- Strategic risk - related to wrong decisions or failure to adapt to a changing market,
- Operational risk - results from process errors, human error, management problems, equipment failure, among others,
- Financial risk - involves liquidity, debts, changes in exchange rates and interest rates,
- Market risk - refers to competition and changes in demand and trends,
- Regulatory risk - results from non-compliance with laws and industry regulations,
- Reputational risk - concerns the perception of the company by customers, partners and investors,
- Cyber risk - related to cyber attacks, system failures and data leaks.
How to conduct a risk analysis in an enterprise?
Risk analysis involves assessing potential risks that could have a negative impact on business objectives. Through analysis, we can not only identify various risks, but also assess their probability and minimize the threat.
Stages of risk analysis:
- Stage I: Risk identification - requires a comprehensive approach and the use of various tools, such as SWOT analysis, brainstorming, security audits or operational reviews.
- Stage II: Risk assessment - assess the likelihood of occurrence and possible impact on business objectives using qualitative and quantitative risk analysis. In this way, you will identify the priorities that require the fastest response.
- Stage III: Risk analysis - you can use a variety of tools and methods, such as scenario analysis, sensitivity analysis, decision trees, Monte Carlo analysis, PERT method, PESTEL analysis, Ishikawa chart, FMEA analysis or applications and software (e.g. Riskalyze, RiskWatch).
- Stage IV: Risk management strategy - determines how to respond to the risks identified during the analysis. The strategy may include risk avoidance (forgoing risky activities), risk acceptance (recognizing that certain risks are unavoidable and that the cost of reducing them may be greater than the potential losses), minimizing the impact of risks (e.g., through training, procedures), and risk transfer (e.g., outsourcing, insurance).
- Step V: Implement the risk management plan - Risk management should involve the entire organization, so all employees must understand their roles. Implementing the plan requires organizing training, creating a crisis team, and preparing emergency procedures and crisis communication.
- Stage VI: Risk Monitoring - Risk management also requires constant tracking of risks and testing of implemented strategies.
Examples of companies that know how to manage risk
Effective risk management is possible, as the stories of well-known companies show. Netflix foresaw the market risk associated with the decline in demand for DVD movie rentals and decided to go with streaming services at the right time. In turn, in 2010, after quality problems with several car models, Toyota decided to stop their production and offer free repairs to customers. By responding quickly and implementing rigorous standards, the brand managed to regain the trust of its customers and avoid the long-term effects of reputational risk.
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