The Need for Effective Risk Management
Do you really know how to manage your risk? A good friend of ours, Keith Roberts, does and he’s this week’s guest blogger. Enjoy!
Risk Management should never be viewed simply as a tool to meet regulatory requirements. It is also a value-creating objective, an integral component in the successful management of any business or project, whatever its size.
The main objectives of Risk Management are to identify and assess key risks, to develop appropriate mitigation actions, and to monitor them effectively and efficiently. Regular reporting is also required to ensure informed decision-making. It focuses on managing customer risks, aligning mitigation actions with the anticipated financial impact should a risk materialize, minimizing cost as a consequence of fewer risks materializing, and transferring risks to third parties and partners through back-to back agreements where appropriate. Defining roles and responsibilities will make sure that risks are owned at the appropriate level within the business, thereby ensuring compliance with internal, customer and external governance requirements.
It makes sense, therefore, that all businesses, whatever their size, should have in place a formal, organization-wide framework of processes and methods to allow them to manage the various risks associated with their activities. They should also consider including the management of opportunities as “positive risks” in the same process.
Risk Management does not set out to eliminate risks completely, but rather to ensure controlled and effective response to risk. Full transparency will enable Management to take well informed decisions as to whether to accept, reduce, transfer or avoid specific risks using the available resources.
“Soft” factors such as openness and effective communication in terms of Risk Management are essential for business success and must not be under-estimated since the active contributions of all employees are required if every action taken is to be effective.
If a clear awareness of the potential impact of risks can be gained at the earliest possible point in time, then it is far more likely that they can be managed effectively. Risk Management encourages forward thinking, so the business will be ready for what might happen and will be better positioned to manage proactively rather than reactively, i.e. last-minute surprises will be ruled out.