What is risk management? The role and process of risk management
1. What is the concept of risk management?
Risk management is the process of identifying, assessing and controlling the threats to capital and income in an organization. Threats and risks in a business can come from many different sources. For example, financial uncertainty, liabilities, errors in the strategic management process; or threats also come from information technology security, data-related risks…
The risk management process helps to ensure safety and limit threats and risks to a minimum. For the management system and company strategy, risk management is considered to be a relatively important issue, and its core value and production and business activities need to be paid attention to at the same time.
For example , the ISO 31000 principles provide a framework for improving the risk management process that companies can use, regardless of the size of the organization or the target area. ISO 31000 aims to increase the likelihood of achieving goals, help improve the identification of opportunities and threats, and effectively allocate and use resources to respond to risks.
2. Enterprise risk management process
Understanding what risk management is can also partly help you define the risk management process more easily. In an enterprise, the risk management process is executed in the following five basic steps:
- Step 1: Identify the risks in the business
Risk identification is the first step in the risk management process. This step will determine the effectiveness of risk management. Administrators need to detect, identify, and process and analyze potential risks in the business.
In order to do this, it is necessary to clearly understand and have clear information about the business, operating model, operations, organizational structure, and all issues that affect the business. The risk will depend on different circumstances. Therefore, it is impossible to apply the risk of one enterprise to the risk of another enterprise.
- Step 2: Risk assessment and analysis
Once the potential problem is identified, the risk needs to be studied more deeply. At this stage, it is necessary to estimate the likelihood and severity of each risk in order to determine the risk to be concerned first.
Many factors, such as the potential financial loss of each organization, the duration of the impact, and the severity of the impact, will greatly contribute to the accurate analysis of each type of risk. A comprehensive risk view will help you discover common problems and how to adapt them to the risk management process of future projects.
- Step 3: Determine risk priority
The risk is ranked by calculating the likelihood of the risk and the potential impact on the project.
Risk prioritization will provide you with the best project overview. At the same time, this will help determine possible solutions for each risk. This will allow the project to maintain progress without major interruptions or delays during the implementation phase.
- Step 4: Deal with risks
Once the greatest risk is determined, a treatment plan will be developed. Although the risks cannot be foreseen, the established risk handling process will help you succeed. You will begin to take the highest priority risks and resolve them so that they no longer pose a threat to the business.
- Step 5: Create a risk management plan
After approval by the leadership, the risk management plan will be implemented in the most specific and detailed manner. Then communicate it to all employees and related departments for execution.
The plan needs to clearly state the responsibilities and roles of each person and team in order to perform well and achieve maximum efficiency.
- Step 6: Implement a risk management plan
In this step, individuals and groups will conduct risk management in accordance with the recommended plan.
- Step 7: Review and evaluate the results
In the process of implementing the plan, the administrator needs to periodically update the situation for evaluation and changes to fit the plan.
3. The role of risk management in an enterprise
In enterprises, risk management plays a relatively important role. Such as:
- Help stabilize the work organization of the enterprise.
- Help companies act in accordance with their mission objectives and achieve their business plans.
- Support senior staff to make the best decisions.
- Increase the status and trust of managers and businesses.
- Help the company successfully carry out risky sales activities.
4. Risk management methods
In order to effectively manage risk, the following basic methods can be used:
- avoid risk
This is a common measure in life, especially in institutions or developing or underdeveloped economies. The measure to avoid this risk is to ignore, stop or completely eliminate all potentially risky problems and projects. Although this measure is relatively safe, it also means that you will have to eliminate opportunities and profits.
- Risk transfer
Partially or fully transferred to other organizations and individuals. This measure will help reduce business liability or damage.
- Keep the risk or accept the risk
This action means that you will suffer losses in the project or business. If the risks are low or insignificant, you will accept them for higher profits. In addition to maintenance and acceptance, there are any other risks.
- risk control
Managers need to continuously evaluate and take measures to quickly and quickly respond to risks so that they can deal with and limit the damage that the risks may cause.
5. Limitations of risk management
Although risk management is essential to business operations, it also has some limitations.
Many techniques in risk analysis (such as modeling or simulation) will require the collection of large amounts of data. Collecting this data can be expensive and unreliable. At the same time, if the indicators used to reflect reality are more complex than what happened, the use of data in decision-making may produce undesirable results.
At the same time, risk management is also restricted due to lack of analytical expertise and time. The risk management program was developed to simulate risks and threats that would have a negative impact on the company. Although cost-effective, complex plans require comprehensive skills and knowledge training for employees to make them highly accurate. At the same time, analyzing historical data to identify risks also requires professional knowledge.
The above article is some information to answer the question of what is risk management . Hope this will bring useful knowledge to help you determine the most effective risks in your business. For more information, please visit the graduation thesis website for support now.