There are four clear steps to consider when decreasing business risk: set goals, define risk, continuously assess risk and report risk information. We explore this topic in depth as incorrectly managing risk within your firm can lead to catastrophic results in both the long and short term. Incorporate risk management into your strategy today.
How to Reduce Business Risks?
Risk is part of every business organisation. Organisations that manage to decrease risk to increase business value will succeed whereas those who do not will suffer. The role of IT is rapidly shifting from leveraging technology for business support to a strategic role of enhancing and protecting business value. It is, therefore, a must to align IT and business strategy with solid processes and practices to achieve business excellence.
Recent volatility in the economy has shown that companywide integrated risk management is critical due to the interconnected nature of various risk events. Managing security and privacy is also paramount to protect business and enhance growth opportunities. Enterprise Risk Management (ERM) models have guidelines for risk management implementation that can be used as a starting point by organisations to classify and manage risks.
1) Set Risk-Management Goals
Comprehensively address risk by considering all risks across the organisation. These can be IT risks, financial risks, personnel risks, environmental risks or legal risks. Too much risk or too little risk can both sound a death knell to an organisation. To avoid this fate, optimise risk and return. Develop plans to protect the organisation against downside risks and to regulate business and financial results’ volatility.
2) Risk Tolerance Definition
Define and communicate acceptable risk and risk-escalation levels within the organisation. Leave no room for interpretation. One person’s perception of high risk must not be evaluated by another as medium risk. This can lead to inadequate risk assessment where underrated risks are ignored and overrated risks consume too many resources.
3) Continuous Risk Assessment
Risk assessment must not be an afterthought. It is crucial to monitor risk continuously in a disciplined manner. This leads to better decision making, improved strategy execution and higher operational visibility and performance.
4) Report Risk Information
Enhancing business value can be effective only when there is an organization-wide risk reporting pipeline. This ensures that risks are appropriately flagged as critical and moved up the pipeline to the concerned person for timely resolution. A reporting system also helps executives and upper management to get a complete view of the enterprise risk, which can then be incorporated immediately into strategic and operational planning.
Businesses that thrive tend to efficiently adapt to changes and incorporate risk management actively at all management levels. With a clear benchmark of the risk threshold and a process in place for ongoing risk evaluation, monitoring and control, businesses can focus on long-term value creation while simultaneously safeguarding against any potential threats.