The 101s of Enterprise Risk Management

What is risk management 

First, let us define what risk management is. Every process, activity or project maintains a certain level of risk, which we can consider as the chance of something not going as planned, causing loss of resources or delays. 

These problems can have different origins, such as a lack of market demand, the failure of a raw material supplier, the mistakes of an employee. Any of the previous items can pose a risk to your operation, causing damage. However, these same factors can bring opportunities for improvement, but to take advantage of them, it is necessary to map the risks first. It is at this point that management emerges, which identifies all these points before they happen, facilitating the taking advantage of opportunities and minimizing the actions of threats. 

We can then conceptualize risk self assessment  as a set of strategic actions that aim to minimize threats and maximize opportunities brought about by uncertain events and outside the control of your company. 

Tips for efficient risk management 

Now that you know what risks are and the importance of efficient management to better take advantage of your opportunities and get rid of threats, let us list some management tips. 

1. Risk analysis 

To apply risk management efficiently, the first step is to identify. When carrying out a good planning of each of its processes and activities, as well as of initiated projects, it is possible to verify what are the threats and opportunities involved. 

Not every risk represents a potential problem, some can be converted into chances for process improvement, bringing gains to your organization. For example, a system that has reduced its operational risks allows for greater release of credits and limits. 

2. Type of analysis: quantitative or qualitative 

The second step after identification is to perform the quantitative or qualitative analysis. At this point, all risks are prioritized according to the degree of severity. In the qualitative analysis, the impact on the company's business will be predicted, if the risk materializes, and the probability of it happening. 

After prioritizing, the search for an appropriate solution begins. Qualitative analysis is more subjective and prioritizes all threats with a higher risk of occurring and that would have a greater impact on the company's activities. 

Quantitative analysis, on the other hand, refers to a numerical survey about the effects that threats can bring to the business and its operations. Generally, scenario simulations are used to perform this survey. 

3. Risk assessment 

Risk assessment is about identifying the impacts and consequences of a given threat. This is an essential step to prioritize those problems that can cause the most damage to the company. It is at this stage that what we call the organization's risk appetite is defined. 

Within the assessment, surveys are made of the possible risks that will be addressed by the company and which will be accepted. 

4. Treatment 

After identifying all the risks and prioritizing each one according to their occurrence and impact, it is time to look for the best solutions according to the level of urgency. 

At that moment, the opportunity brought by a certain risk and the search for maximizing and exploiting that item are seen, as well as the attempt to minimize any identified threat to the maximum. Planning is the construction of response actions for the risks selected in the assessment phase. In the treatment phase the company can choose between 4 types of different strategies: 

mitigation: one of the most used risk treatment techniques is to limit the impact caused by a risk. In this way, the problem becomes less and does not cause much damage. 

transfer: this technique consists of transferring responsibility for risk management to a third party. In these cases, insurance is an interesting option.