No company or organization can avoid taking risks. Some risk can even have devastating effects. Fortunately, risks can be reduced or their potential impacts can be mitigated.
Most of the companies are aware of existence of business risks. However, many of them depend on intuition. Our 15 years of experience clearly imply that intuitive approach is usually insufficient and it is necessary to use a clearly set methodology instead.
The methodology includes a clear description of personal responsibilities of individual employees and divisions, required procedures for risk identification, risk measurement and subsequent steps for its management. The methodology is a specific and practical procedure tailor-made for the given company, which helps the company to avoid dangerous situations and decreases the costs associated with risks.
Business risks have many forms and are differentiated by the area of company’s business activities. There may be financial, operational, business, project and other risks. Therefore, one of the first steps of implementation of risk management system is to create a list of the risks called catalogue or risk map. For each risks it is necessary to include not only its description, but also evaluation of probability of its occurrence and related negative financial impacts. Additionally, new threats are being regularly identified and for already identified threats, frequency and significance of potential impacts is being revaluated.
For the purposes of risk management, it is convenient to divide the risks into several categories based on their significance. In the scope of risk management, measures are being implemented to lower the probability of their occurrence or to decrease the impact of selected risks.
Nowadays, every investment (including investment into implementation of risk management system) is subject to strict assessment of its returns. Risk management system covers not only catastrophic scenarios, but also frequently recurring risks with smaller impacts, which many companies include into operational costs. These costs can be significantly decreased, thanks to functional risk management system.
Therefore, a correctly set-up risk management system provides the company with a higher level of confidence in its business activities and also decreases operational costs. It is a long-term investment which definitely pays off.