As business risks continue to evolve in an ever-evolving global environment, risk managers must maintain the appropriate mindset and approach in order to help businesses prepare for any unexpected scenarios. They require an overall view of the environment in order to effectively anticipate unforeseen situations that might arise.
It includes the capacity to identify new risks and weaknesses as well as determine their appetite for risk taking and willingness to pivot.
Risk Assessment
Companies should conduct regular risk assessments in order to be better prepared for unexpected challenges and make informed business decisions. Conducting risk evaluations regularly can help businesses manage risks more efficiently while increasing performance while decreasing losses and creating greater value.
Risk analysis involves identifying hazards that could threaten business operations, production infrastructure or assets and budgeting for preventative or corrective measures to be implemented as soon as possible.
Traditional categorizations were established based on each discipline’s methodological perspective (Renn 2014). As such, this has led to undefined or obscure categories like emerging risks that require specialist knowledge for identification and mitigation strategies at company, competitive context and global systemic scale levels.
These new categories provide a more precise and effective means of reading risks by examining how they manifest in various areas. By doing so, it becomes possible to aggregate different types of risks according to their level of occurrence across micro-business, meso-competitive, global systemic and global systemic levels of operations.
Risk Mitigation
Business must develop and implement a sound risk mitigation strategy in order to limit the adverse impact of risk when it arises and guard against its costs.
Identification is the starting point in risk mitigation, enumerating all the threats facing your organization and classifying them based on probability and impact.
Some risks, like natural disasters, cannot be avoided entirely and must be managed. When this is the case for your company, its best option may be entering service level agreements or purchasing insurance as ways to transfer the burden.
Other risks might be easier to manage through policies or procedures; such as restricting investments or not opening offices in war-prone regions. Once implemented, taxonomy technology provides an easy way to monitor their effectiveness and revise them if necessary; furthermore, taxonomy technology also enables workflows that notify stakeholders if a control changes.
Risk Management Strategy
Although companies cannot prevent certain risks entirely, they can at least reduce the impact. For instance, an airline can protect itself against sudden increases in fuel prices by purchasing hedges and insuring policies to hedge them; similarly, companies in areas prone to earthquakes should build their facilities so as to withstand more intense quakes.
Establishing an effective risk management strategy is integral to effectively overseeing business risks. A thorough risk assessment strategy must identify all of the potential hazards related to the program or activity and assess their severity; for instance, conducting lab experiments often require traveling off-site locations, setting up their experimental environment, conducting the experiment itself and cleaning up afterwards – this poses numerous hazards such as exposure to chemicals and contamination by waste products.
As part of your ongoing business planning efforts, it is crucial that you remain aware of any emerging risks that could have an adverse impact on your company. Tools like risk modeling and scenario planning are useful here, while you could also enlist external consultants or partners to identify and mitigate risk effectively.
Risk Response
Once risks have been identified and assessed, the next step should be deciding how best to respond. Response options fall into four broad categories: avoid, transfer, mitigate and accept; each option comes with unique advantages and disadvantages.
Avoiding risks outright is one option available to businesses, though this strategy should only be pursued when there is absolutely no tolerance for specific risks. Furthermore, this approach could prevent growth opportunities being missed out on by your organization if done incorrectly.
Transferring risks is another effective strategy for mitigating them, which can be done via various contractual mechanisms like joint ventures or partnerships. Businesses may also establish special-purpose companies or divisions dedicated to managing specific opportunities that don’t fall within their strategic plan – this may prove particularly effective.
