Adverse risk events since the turning of this century have forced organizations to make a fundamental shift in how they perceive risk management. Companies that earlier focused simply on avoiding monetary losses and achieving regulatory compliance are now focusing on risk management practices to achieve business goals. The emphasis on the processes is being supported by an efficient workforce and able technology. But while an increasing number of businesses are putting risk management into practice as a key factor for value creation, there are organizations that rely on reactive actions devoid of proactive planning.
These companies adopt impromptu strategies to comply with regulatory demands or to tackle emergencies, and their practices are not designed to address more strategic business risk areas. Consequently, their efforts of identifying and proactively managing risks become a bouquet of flawed approaches, which readily surrender to the challenges of putting risk management into practice. These are also the challenges that enterprises need to overcome to reach a stage where their risk management process is viewed as a strategic decision.
On the other hand, enterprises that adopt the practice of risk management gain competitive advantage as they portray the right brand image to clients, partners and overseers. These, in turn, project a safer business environment, often inviting necessary funding. Successful enterprises take a wholesome approach and accept that risk is integral to the pursuit of value. These entities realize that where challenges exist, opportunities also arise.
They endeavor not to remove risk, but manage exposure to threats in such a way that the business faces just the appropriate amount of threats that allow them to seize the opportunities presented through proper risk management. These organizations embed widely accepted risk management practices into their existing business process framework. They regularly refresh the risk management strategy to adapt to evolving regulatory requirements and new internal threats; the adoption of the processes initiated through effective risk management result in business benefits, creating advantages through risk-based decision making.
Successful businesses are adopting an uncomplicated, practical approach guided by practices that are people-, process- and technology-driven. To benefit from risk management practices, it is imperative that the process is performed by people with the right skills, who have been empowered by evolved technology customized for the purpose at hand.
A robust enterprise wide risk management (ERM) framework should be used for outlining the methods to strengthen the management of risk which will facilitate agile response in scenarios of business uncertainties. People with adequate analytical and facilitation skills should perform the risk-related activities, and the accountability should be borne by risk owners to bring risk within defined levels. A culture of shared responsibility will help in leveraging expertise of the people in the organization familiar with the threats.
While people are critical for the practice of risk management, alone they are not enough. Efficient people must be provided with suitable technological support. A closer integration between the ERM function and employee function is vital. As a business grows from planning to the execution stage, use of adequate technological support becomes increasingly vital. Starting a risk management process in a spreadsheet application can be practical to ascertain analytical requirements, but when it is risk management software vs. spreadsheets for a prolonged duration and geographically distributed locations, software wins hands down due to innovative features and a vast array of price points. Once risk management is put to practice, the process must be continuously accommodated within the larger framework to yield sizable benefits.
Risk assessment as a discipline has advanced in recent years in spite of the challenges and also due to the opportunities hidden beneath them. Organizations that diligently put risk management into practice reap a rich harvest while others make futile attempts to keep government authorities at bay and fail to keep their balance sheet healthy.
To which group does your business belong?
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