The business environment is complex and ever-changing. Therefore, all organizations should come up with processes to effectively and proactively manage risks that may occur in the course of operation. Failure to manage risks can result in loss of resources or even closure of the business.
The best way of managing risks is coming up with clear and well-laid strategies. This article will look at eight of the most effective risk management strategies based on best industry practices that can be employed by companies and organizations to shield themselves from losses that may result from risks.
Keep in mind that disasters can also wreck your well-laid plans. However, with the right strategies, you stand a chance for long-term success.
1. Come Up With A Proper Plan
Every manager knows that all businesses should have a solid risk management plan in place. There are things that one must know when coming up with one. The type and scope of the plan should depend on the company’s needs.
A risk management plan for a huge company or business can consist of hundreds of pages or even more, whereas a small business only needs a little spreadsheet touching on just a few items. However, while coming up with a plan, you need to include a list of the individual risks, ratings based on likelihood and impact, an action plan and an assessment of current controls.
You should add an assessment of current controls for each risk that you have identified and how effective the management is. It would be best if you also considered the effectiveness of all the actions that you have listed.
2. Decide How To Handle Every Risk
You need to come up with a way of handling every risk after identifying and prioritizing them based on their likelihood and impact. It would be best to deal with every threat by focusing on how you can manage them best.
There are four main strategies when it comes to dealing with risk. Keep in mind that all the methods have their advantages and disadvantages, but you will probably end up needing all four.
The first strategy is avoiding risk. This happens when the risk is so severe that the best way to deal with it is to eliminate it. This is the most effective way of dealing with threats. It allows you to prevent losses by avoiding the activity that may cause them.
However, it also comes with a disadvantage. You will lose out on any benefits that may have accrued from the risk. Most risky activities are profitable and even beneficial. Therefore, this strategy is best used as a last resort.
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You can choose to reduce the risk if you do not want to avoid it altogether. This involves taking steps to minimize its impact. This is usually the most common strategy and can be used with several risks.
You can continue with all the activities while putting measures in place to mitigate its impacts. It offers you the best of both worlds if correctly done. However, you may still end up suffering the loss that you fear if your controls are ineffective.
The third approach is transferring the risk. This is closely connected to the concept of insurance. An insurance contract transfers risks from a party to the other but with payment in return. You can share many of your risks with an insurance company while in business.
The best way is to insure the property and vehicles and take several liability insurance types to be immune from lawsuits. This strategy applies to risks that have an enormous potential impact provided that you settle on a cost-effective policy.
The last strategy is risk acceptance. Remember that all the other methods come at a price. Avoiding risk means forfeiting all the benefits that may have accrued. Reducing a risk can be quite costly, especially when new systems are involved. Transferring the risk may also be an expensive venture, especially on risk premiums.
In this case, the best approach to handling minor risks is by accepting them. You do not have to invest in new software or take up an expensive premium when you can accept the risk without suffering a massive impact.
This does not mean that you should not look for a simple, low-cost solution. If you find a better solution, take it, but accept the risk if it will not yield. However, make sure that you perform a thorough assessment to not run into nasty results.
3. Risk Monitoring
You need to check whether the measures you have put in place are working, and your business is regularly working to identify and adequately deal with new risks. The best way is to start with the plan that you have been putting together.
It is safe to assume that you have a document detailing all the risks in your business, their likelihood and impact, and evaluating current controls and an action plan. Most people come up with such a document and forget about it, making no necessary updates.
If you plan to manage risks appropriately, you must ensure that the document is living, meaning that it should be continuously updated to mirror new situations, threats and practical actions. Ensure that each activity in your document has a target date and a person in charge.
However, if you notice that the actions are not sufficient, you should check out and try other alternatives. If you have tried everything and they still don’t seem to work, it would be wise to accept the risk if it is crucial or eliminate it.
Keep in mind that there is no rule when it comes to updating a risk management plan. Large organizations usually have departments dedicated to risk management. However, if you cannot manage an entire department, commit always to update your plan regularly.
You can begin by making changes to single items, however small. You should then strive to carry a comprehensive review of the document regularly, yet less frequently. Ensure that you review all the risks that the business is subject to and rank them regularly while notifying any change.
4. Proper Training Of Employees
Employees form an essential part of your business. Therefore, you should protect them at all costs if you intend to manage risks that may accrue in your operation effectively. This is because your employees handle the business’s day-to-day operations and are therefore better placed to manage disastrous situations.
Employee education is a broad area that can be broken down. The first sector is about workplace safety. Ensure that you protect your employees by conducting frequent training sessions on how to stay safe while working.
Employees must also be given appropriate equipment, and depending on the business, made to wear the required safety equipment. You must also work your employees through the safety procedures to know what to do when something happens.
Customer service is also essential and can be used to avert several risks. Your customer care department should understand how to resolve conflicts and when to get you involved. All in all, make sure that your employees are better placed at handling risks and preventing their occurrences.
5. Use Technology
You need to tap into technology if you are running a business in today’s world. This is because there are several sets of risks that are involved in digital operation. Your customers’ or client’s information is vulnerable to cyber theft if stored in your systems. However, with the right technology, you can prevent such a risk.
Some of the technological advancements you can invest in include anti-virus software, which will keep away malware, phishing and viruses hence protecting your organization’s data. However, you must ensure that there are appropriate firewalls and software installed.
You should ensure that your Wi-Fi network is adequately protected. Offering internet connection to clients and employees is a good move. Still, you have to keep the network safe from outside attacks, or you can lose critical data that may lock the company or organization in unending lawsuits.
A good movie is using secured networks and only offering the Wi-Fi password to staff. Lastly, you have to invest in quality security cameras. Well, even though they won’t keep off risks, but they can help you detect any intrusion or criminal activity and theft that may threaten your business.
You can also manage digital threats by taking up a cyber liability cover. This steps in if your system is compromised and sensitive information is leaked. Most covers take care of litigation, customer notification and credit monitoring.
6. Stakeholder Involvement
You have to involve all the stakeholders if you want to manage risk effectively. Stakeholders refer to everyone who has a stake in the business or project. It can, at times, include the government and the neighbouring communities.
Most stakeholders, especially the most influential ones, play an essential role in risk aversion and management. These may include clients, managers, shareholders and unions. Most of these individuals play different roles and responsibilities within the organization. They can, therefore, help you understand all aspects of your business and the risks that may come up with the company and its operations.
Stakeholder involvement keeps them interested in business operations, which allows them to identify risks that the business may face. There are different perspectives from which people look into things, and it is easy for someone to notice that may have escaped you.
For effective involvement, you need to come up with an effective communication strategy. It would be best if you communicated risks throughout the organization using the proper channels. Ensure that you use effective communication strategies when communicating risks, or else some stakeholders may feel disrespected. Stakeholder management requires that you come up with communication strategies that suit all the stakeholders.
By communicating risks with the organization, you will ease identifying new risks, their assessment and mitigation. Therefore, always ensure that you create awareness of the dangers by communicating to the entire organization.
7. Create A Robust Risk Management Culture
You need to set a tone of compliance from the top. The most crucial step to effectively manage risks and achieve success is by having a strong risk culture. What is the risk culture? These refer to the values, beliefs and attitudes regarding risks by a given group of people.
Top managers understand that communicating the company’s culture is an essential responsibility since it makes people comply. Employees are often a reflection of the top management most of the time, and once the management shows that they are serious about something, the employees will always comply.
The management should ensure that they impart the importance of risk awareness to employees throughout the organization for proper risk control and management.
8. Proper Integration
A company or organization should integrate its risk management efforts in the entire organization. This is closely connected to the seventh point. However, while doing so, they must ensure that they have a comprehensive and structured risk management approach in place to provide the most consistent and desirable outcomes ever.
They must also customize the approach to the company’s needs. We all love working with things and in environments that suit us, and therefore, there should be no exception when it comes to a risk management strategy.
Before integrating an approach, one should look at the organization’s objectives and the internal and external context in which it operates.
These are some of the best risk management strategies that companies can take up to achieve success and avoid loss of capital. A manager should ensure that risk management is inclusive and involves all the stakeholders in a timely and appropriate manner.
The best way to manage risk is to consider and implement all stakeholders’ perceptions, views, and knowledge sets when coming up with risk management efforts. The risk management strategy should not also be static.
Change is inevitable in business, and organizations should know how to deal and work well with it for the organization’s success. Therefore, an organization should draft the risk management program in such a way that it helps them anticipate, identify and respond to given changes in the best way possible.