Every business is prone to risk is everyday operations. Risks can be analyzed through scenario analysis, which involves the study of possible future happenings. The approach places risk into three probabilities; the probability of the occurrence, the probable loop holes and the probable impact.
Risk management is the act of identifying the potential risks and developing strategies to decrease their chances or eliminating them altogether. Here?s a list of the possible risks that a business can face.
1. Health and safety
There are health and safety risks for all businesses. For example, a customer or an employee can slip on a wet floor. An employee with an infected disease can prevent harm to the co-workers, and an overtime shift of employees can lead to headaches. Therefore, risk management is important for every type of business.
2. Financial risks
Financial risks are mostly faced by financial institutions. According to J.P Morgan, one of the major reasons of sub-prime mortgage crises was poor risk management. Small and large companies are at a risk of client confidence, bankruptcy and dissolution of the business. These financial risks can be avoided through a sound strategy.
3. Legal risks
Legal risks are present for any business, and they can expose the business to big financial penalties. Arthur Andersen, the accountancy firm, lost the trust of its clients and investors due to the Enron debacle. Many partners and employees also resigned.
Businesses may be overwhelmed as all risks are a priority. So how does a business owner manage all the risks taking into consideration the budgetary constraints? The idle solution lies in enterprise risk management, which is a holistic risk management solution. Professional risk management strategies are also available for businesses such as LexisNexis risk management. All risk management solutions and strategies include these 3 processes.
1. Identification and assessment of risks
After taking the service of a professional company, the senior authorities have to agree to the process. It?s importance to identify those risks for the organization that are talked about but not documented. Identification will require carrying out different processes and activities such as holding workshops and meetings among employees and management. This will allow for the input of those who may have documented variety of risks.
2. Creating a strategy
After the risk has been identified, a strategy is going to be required. Enterprise diversification strategy requires creating backups in perfect correlation. Risks will also be prioritized depending on the extent of harm they can cause during strategic planning.
3. Regular reviews
Risk management needs to be a long term process with frequent reviews of the strategy designed to reduce or eliminate the risks. Through regular reviews, the risk management company and business can find out whether the strategy needs to be revised or not. It?s also important for businesses to consider it as a part or the overall planning and decision-making.
Risk management can have a positive effect on the overall image of the company. It also improves the decision-making process and leads to the efficient use of resources, leading to higher revenue in the long run.
Source: http://www.gettingmoneywise.com/2013/01/what-is-risk-management-and-why-do-we-need-it.html
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