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Management of Risk: Why It’s Important for your Organisation and How to Get Started
Every business faces internal and external risks. Risk is inherent to doing business, and it can come in many different forms. The Management of Risk (MoR) is the process of identifying, assessing, and managing risk so that they do not harm your organisation. Organisations need to manage risk because it can lead to financial losses, reputation damage, and even bankruptcy if not appropriately handled. This blog will discuss the importance of risk management and the five main types of risk facing organisations. In addition, we will discuss some significant risks in 2022 you need to consider and basic steps to get started with managing risk for your organisation.
The Importance of Risk Management
Businesses should manage risk because it can lead to negative consequences such as financial losses, reputation damage, and even bankruptcy if not appropriately managed. By managing your risks effectively, you can avoid these outcomes and protect your business from potential disasters.
Common mistakes made in the Management of Risk
Businesses make mistakes in the management of risk all the time. Here are five common ones:
Ignoring potential risks
For example, companies might ignore potential risks associated with their supply chain. However, by not assessing and addressing these risks, the company is putting itself at unnecessary risk. Another common mistake is focusing on short-term risks instead of long-term ones. This can lead to businesses making rash decisions that may not be in their best interest in the longer term.
Focusing on the wrong risks can be costly.
Many companies focus on the wrong things when it comes to risk management. Companies may worry about potential losses, business objectives not met, but not consider the cost of inaction. For example, a company may be concerned about the risk of cyberattacks but not take steps to secure their systems until after an attack has occurred. This can be costly in terms of money and lost business.
Management of risk is vital for all organisations, big and small
Management of risk is essential for all organisations, regardless of size. Small businesses may be less likely to experience a major catastrophe like a natural disaster. However, they are still vulnerable to risks like theft or data breaches. Executive management must be aware of the likelihood of these risks and have a plan in place to mitigate them.
Not implementing a risk management plan.
A risk management plan is essential for any organisation. Without one, it can be challenging to make informed decisions about handling potential risks that could impact the organisation. In addition, one should update the plan regularly to reflect the changing landscape of the business. It’s also essential to communicate the risk management plan to all employees, including external vendors and partners. This will ensure that everyone is on the same page and knows what to do in a risk event.
Not updating the risk management plan can be costly
Not updating your risk management plan can be very expensive for your organisation. Every day that goes by without an updated plan means that your organisation is at risk for potential threats. For example, if you are a small business and not prepared for the likelihood of a natural disaster, such as a hurricane, you could lose everything. Your inventory, equipment, and even your building could be damaged or destroyed in the storm. Suppose you have not updated your risk management plan to account for a potential natural disaster. In that case, you are putting your business future at risk. Another example of the cost of not updating your risk management plan is if you are a business that relies on technology. If your IT systems crash and you have not updated your risk management plan to account for this possibility, you could lose a lot of money. For example, you could lose customers because you cannot take orders or process payments and lose important data to your business. Updating your risk management plan can help you avoid these costly situations. By considering new risks that have arisen since the last time you updated your plan, you can help you protect your business. By avoiding these five common mistakes, companies can better manage their risk and protect themselves from potential harm.
The Five Main Types of Risks
The five main types of risks for organisations are listed below:
Financial risk
Financial risk is the potential for loss arising from investments and transactions. Financial risk can include foreign exchange rates, interest rates, credit risks and commodity prices.
Operational risk
Operational Risk Management is about protecting your organisation against potential losses arising from business processes and operations. Operational risk can include anything from a human error to system failure.
Reputational risk
Reputational Risk Management is about protecting your organisation’s image and brand. Reputational risk can arise from poor customer service, safety incidents or data breaches.
Compliance risk
Compliance Risk Management is about ensuring that your company meets all the legal and regulatory requirements. Compliance risk can include health and safety, data protection and financial crime prevention.
Strategic risk
Strategic Risk Management is about identifying potential risks to your organisation’s future success. Strategic risk can include market changes, technological advances or disruptive competitors. By understanding and managing these five types of risk, you can help protect your business against potential losses and ensure its long-term success. The Major Risks Facing Business in 2022 The three significant risks facing business in 2022 are:
Pandemic Third Wave
The third pandemic wave is a significant risk to businesses in 2022. The virus has already caused widespread damage, and the potential for even more damage looms large. As a result, organisations need to prepare for the outbreak’s possibility of disrupting their operations or worse. This latest outbreak has impacted critical staff in hospitals, warehouses, and retail stores, leading to workforce shortages and a significant impact on companies of all sizes. Unfortunately, the virus has not spared anyone, with small and large companies struggling to keep operations running. The biggest concern is the risk to critical infrastructures, such as hospitals and transportation systems, during a pandemic. The Omicron virus has shown us that even well-prepared organisations can be impacted if key staff fall sick. For example, some hospitals in regional Australia were offering significant incentives for staff to return to work. Cybersecurity risks also increase in a pandemic, as businesses are more likely to experience attacks from malicious actors looking to take advantage of employees Working From Home (WFH). The supply chain is also at risk during a pandemic, as disruptions to the flow of goods can significantly impact companies. For example, factories may not produce products, truck drivers may not transport goods, and retailers may run out of stock. Pandemic risk can lead to a loss of revenue and even bankruptcy for companies. Companies need to be prepared for the potential that the third wave of the pandemic could disrupt their operations. They should have contingency plans to deal with workforce shortages, supply chain disruptions and cybersecurity incidents. Preparation is essential to ensure that your business can weather the storm.
Cyber Security Risks
Cybersecurity risks are also a significant concern in 2022. Hackers are becoming increasingly sophisticated, and they are capable of causing a great deal of damage. Organisations need to protect their technology assets and their employees Working from Home from these threats. Cybersecurity risks come in all shapes and sizes. Here are two examples of how a cyberattack can disrupt a small or large organisation: A ransomware attack that locks down the computer systems until a ransom is paid could seriously impede a small business’ operations. In addition, compromised sensitive customer data could lead to potential financial and legal consequences. A large business crippled by a cyberattack that takes down its computer systems or website can lose revenue as customers cannot make purchases and damage its reputation. In addition, confidential data could be stolen, putting the business at risk for fraud or identity theft. For example, on May 7, 2021, Colonial Pipeline, America’s most prominent “refined products” pipeline, went offline after cyber attackers infiltrated its core IT systems with ransomware. Colonial had to pay the hackers $4.4 million in cryptocurrency. However, the good news was that US law enforcement officials could recover $2.3 million. It’s essential to be aware of the many cybersecurity risks out there and take steps to protect your organisation.
Supply Chain Risks
The third significant risk facing companies in 2022 is the effect of supply chain disruptions playing out across the world. Many organisations rely on goods and services sourced from all over the world. A disruption in the supply chain could have a significant impact on organisations. Organisations need to develop contingency plans to identify the risks. For example, the 2021 Atlantic hurricane season in the USA will likely go down as one of the most expensive in history. The hurricanes caused widespread damage to infrastructure and affected industry supply chains for weeks afterwards. The Hurricane Ida event alone accounted for more than $60 billion in damages leading to shortages of critical goods such as food and fuel, which impacted small companies and large corporations. Another example of a supply chain disruption is the WannaCry (2017) ransomware attack that affected businesses worldwide. This cyberattack caused widespread computer outages and disrupted supply chains. As a result, companies could not access essential data or operate their systems. IT systems in 150 countries were affected by the attack, with a total estimated loss of around $4 billion globally. Organisations must be aware of the risks posed by supply chain disruptions and take steps to mitigate these risks. Contingency plans can help organisations continue to operate in the event of a supply chain disruption. These are just some of the significant risks facing businesses in 2022. Therefore, companies need to be aware of these risks and mitigate them. Failure to do so can have financial costs and impact business continuity. Essential Steps for the Management of Risk in Your Business Each business must take a different approach to risk management, as the level of risk will vary from company to company. However, there are some critical steps that all businesses should take to manage risk:
Understand your company’s specific risk profile
There is no one size fits all when it comes to risk. Instead, each business has its unique risk profile that must be defined and understood to make informed decisions about the best way to manage risk. For example, a company that manufactures products may have a higher risk of product liability claims than a company that provides services. In addition, a business that operates in a foreign country can be exposed to different types of risk than one that it currently operates in. Therefore, it is essential to understand your company’s specific risk profile.
Create risk management policies and procedures
Risk management involves identifying, assessing, and managing risks to your business. Without risk management policies and procedures in place, you are putting your business at risk. Risk management policies and procedures should be tailored to your specific business to ensure that everyone who needs access to them understands them fully. For example, one of the most critical aspects of risk management is identifying risks. You can do this by looking at your business model and asking yourself questions: What could go wrong? What are our vulnerabilities? How likely is it that something could happen? Once you have identified the risks, you need to assess them to determine how serious they are and decide what steps to avoid the risk. For example, suppose you have identified a risk leading to financial loss. In that case, you may want to take steps to reduce your vulnerability or purchase insurance.
Implement risk mitigation strategies
Implementing risk mitigation strategies is vital to protect your company from potential losses. By implementing risk mitigation strategies, you can prevent or reduce the impact of a disaster case scenario on your company. One example of a risk mitigation strategy has backup systems in place in case of an emergency. This could include having a backup power supply, redundant computer systems, or a disaster recovery plan. By having these backups in place, you can minimise the damage caused by an unexpected event. Another strategy is to have a plan for dealing with unexpected events. This could include having a crisis management plan in place or knowing who to contact if there is an emergency. By being prepared for the unexpected event, you can minimise the likelihood of damage caused by a disaster. Finally, it is crucial to keep track of your organisation’s risks and threats. This could include risk assessment tools or simply keeping track of what could go wrong. You can put risk mitigation strategies to protect your business by knowing the risks. The most important thing is to get started with risk mitigation as soon as possible. The longer you wait, the riskier your business becomes.
Monitor risk levels and performance
Risks can come from many sources, such as changes in the marketplace, new regulations, or even natural disasters. Therefore, it’s essential to be prepared for any risks and plan to deal with them. Having a monitoring system in place will help you stay on top of any potential problems. Here are three key reasons you should monitor your organisation’s risk levels and performance. – to protect your organisation – Monitor risk levels and performance to improve your organisation Monitor risk levels and performance to make informed decisions about your organisation’s future. By using risk management tools, you can better assess and monitor the risks your organisation faces. You can also compare actual performance against your goals and objectives and take action to manage any risks that are identified. This helps you keep your organisation running smoothly and minimises the chances of any significant problems. Monitoring risks is important because it can help you avoid costly mistakes. It can help you understand where you are making money and where you could be making improvements. It can help you plan for the future of your business. By monitoring risk levels and performance, you can make more informed decisions about your organisation’s future. There are many tools you can use to monitor risks. One popular tool is a risk assessment matrix. This tool allows you to rate the risks in your business on a scale of a low, medium, or high and will help you focus on the most severe risks and take action to avoid the risk. Another tool that you can use is a risk register. This document allows you to track all the risks your business faces and any mitigation strategies in place. A great way to keep track of your progress and make sure that all risks are addressed. A final tool that you can use is a risk dashboard (generally associated with specialised risk management software). The dashboard allows you to see all the risks your organisation faces at a glance. In addition, the likelihood of that risk materialising, the severity of impact and what actions need to be taken to mitigate them. This is a great way to overview your organisation’s risk profile and ensure that everything is under control. By monitoring risk levels and performance, you can protect your business from potential problems. You can also improve your business by understanding where you are making money and where you could be making improvements. Finally, you can make informed decisions about the future of your business by having a risk management plan in place. Summary In conclusion, for companies to be successful, managers and employees must understand and manage the risks they face to ensure business continuity. The Management of Risk is a process that helps managers and employees do just that. Each type of risk presents its unique challenges and can significantly impact a company’s success. If you’re looking to train your employees with the skills they need to manage risk, look no further than our accredited e-learning Management of Risk (MoR) training course! The Management of Risk (MoR) e-learning training and certification micro-credential is the perfect way to ensure your Governance, Risk and Compliance (GRC) professionals and other key employees are equipped with the skills they need to manage risk effectively. The course is accredited by AXELOS and globally recognised, so you can ensure your employees will receive top-quality training. With our accredited course, you can be confident that your employees will have the knowledge and skills they need to manage risk in your organisation. They can learn anywhere, anytime on any device, without attending expensive instructor-led physical or virtual classes. Contact us today for more information!
