Tapping Risk Management Practices to Promote Business Growth

Business risks are profoundly one of the worrisome aspects in business success and this is why risk management is an important aspect for any business be it large or small. Risks cause daunting moments for investors and business management.  In a bid to understand what is risk management, it is imperative to define what a risk is. Risks are consequential event occurrences that subject a business into threats that manifest in form of damages or losses. The uncertainties are either internal inceptions or originating from outside the business but pose a threat.

An enterprise risk management process entails an identification of the uncertainty events, assessment of the possibility and degree of impact, implementation of mitigation measures by minimization, control and monitoring of the probability and severity of the risks' effects. A good risk management is defined by the ability to identify the risks and edge out extenuation measures to control the possibility to occur and the extent of the impact.

The uncertainty events identification can be carried out by establishing the common known risks including such as it risk management issues presented by lack of technological developments in a business and listing them down. It can also be achieved through defining the objectives of the business and establishing any hazardous events that may trigger impacts on the efforts to realize the goals. Risks sources can also be analyzed to see how they prompt the occurrence of the uncertainties.

For example, employees may be a source of risk, and the uncertainties may be poor financial management, workers injuries due to unsafe work environments and increased employee complaints that may induce industrial strikes. IT innovations may be another source of a business risk and the uncertainties presented may include lack of adopting new technologies, adopting the wrong technologies, and using best-of-the-breed resource planning and scheduling tools that are not compatible with existing IT systems in the workplace.

In risk management plan, identification of the risks paves way for an assessment to establish the probability and severity of the risks. Prioritization of the uncertainties is done and this depends on how soon and often the risk can occur and the damage it may cause to the business. The composite risk index is one of the widely accepted forms of risk evaluation. It holds it that, the composite risks index is a function of the impact of risk event multiplied by the probability of occurrence. The impact of the risk is evaluated in scales of 0 to 5 (whereby, 0 stand for minimum impact and 5 maximum impact).

Probability on the other hand is put in to indicator measurements of 0 to 5 (whereby, 0 corresponds to zero probability and 5 represents 100% possibility of the risk even to occur). From the tabulations, the composite index is calculated and it ranges from 0 to 25 (whereby, the figures are discretionary divided into low, medium and high risks).

Therefore, high indexed risks that have a high probability and more severe are accorded urgency in the risk management plan and mitigation measures need to be put in place. The implementation process is vital as it determines how the business may apply the available resources in the most economical way to achieve results. There are mainly four implementation methods in the risk management process and these are;
•    Risk avoidance
•    Reduction
•    Sharing
•    Retention

The adoption of each of the strategies is pre-defined by the composite index. Highly indexed risks such as fire damages, natural disaster occurrences and staff injuries from work-related accidents are usually perceived as expensive to retain and the business usually passes on the liability to another party. This is what is regarded as sharing and the risks liability is 'transferred' from the business to another firm such as an insurance company that covers the losses. The insurance risk management companies understand the nature of these damages and are willing to take the risks on behalf of the other companies.

Nonetheless, there is some degree of residual risk liability, for instance, in the event that the other party ascertains that the occurrence of the risk was due to negligence of the business management, then it may render the risks non compensatory and the business eventually bears the burden. The risk management program such as planning also entails a review and evaluation of the 'framework' to employ the necessary changes so as to update the previous security controls put in place.

Due to changing business environment, the mitigation measures need to be revised periodically in order to keep abreast with the threats dimensions. For instance, the business may expand its operations through injecting in an additional resource base such as personnel, working capital, physical assets including machinery, buildings and equipments. This implies that the cost of damage changes significantly and risk management assessment should be done and the changes updated and reflected in the Business Continuity Planning (BCP) in order to have the most justifiable valuations with time.