Every business has to face risks in the process of doing business. SO, risk management It has become a must-have for all businesses.
So you understand what enterprise risk management is? What types of risks can companies face? How to effectively manage business risk? Let’s find out all about it through the following article by Ms. Uptalent!
CONTENTS:
1- What is enterprise risk management?
2- Name the risks of the company
3- The role of risk management
4- Effective risk management method
5. Closing
1- What is enterprise risk management?
Enterprise risk management is a process of identifying, analyzing and controlling events that could negatively affect the business in order to keep everything under control and ensure that objectives can be achieved.
Speaking of risk, you can understand it as a set of possible outcomes related to a certain event and its consequences.
Effective risk management means striving to have good control over future results by acting actively, not reacting passively. From there, it is possible to minimize the possibility of occurrence of the risk and its effects.
The issue of risk management is influenced by the board of directors, management and other personnel of the company. If risk management is good, companies can not only reduce risks but also seize good opportunities to achieve their goals with optimal results.
2- Name the risks of the company
Risks can arise from a variety of sources, including internal and external to the business.
The degree of damage from different types of hazards also varies considerably. It depends on many factors such as the origin, the sector, the nature of the risk, etc.
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In general, companies will face many different risks in the course of their activities. In particular, there are some common types of risks such as:
2.1- Market risk
This is a very common type of risk. Most companies face it.
Market risks can arise from fluctuations in interest rates, exchange rates, commodity prices, supply of goods, etc.
Market fluctuations can cause companies to face many difficulties in balancing supply and demand. If the management is not good, the company will suffer heavy losses.
2.2- Strategic risk
Strategic risk arises from the delay in implementing strategies that cause the organization to fall behind market fluctuations.
Due to a donation strategy that is not timely, companies face the problem of poor business performance and low competitiveness against competing companies.
2.3- Environmental risks
Environmental risks often manifest themselves in the form of violations of regulations, environmental protection regulations or laws protecting human health.
Generally, companies may carry out activities that damage the surrounding environment, such as the discharge of untreated waste, chemical leaks, etc.
2.4- Brand risk
If the company’s brand image is affected by reasons such as commercial fraud, poor product quality, customers are not satisfied with the product, etc., the company will face great risks. .
2.5- Legal risk
Legal risks come from companies that do not master legal regulations. If legal problems arise, the company may suffer heavy financial losses and face many other problems.
2.6- Financial risks
Financial risk can come from poor business decisions or market fluctuations. This greatly affects the ability to control the cash flow and debts of the business.
3- The role of risk management
The purpose of risk management is not only to reduce risk, but also to manage risk effectively, and even to find development opportunities from risk.
You can clearly see the role of risk management through the following points:
3.1- Risk management helps companies achieve their strategic objectives
There is an extremely close relationship between risk management and business strategy.
By effectively managing risk, business leaders can easily respond to fluctuations in the business market.
From there, they can quickly and effectively manage incidents and crises when implementing corporate goals and strategies and achieve the desired results.
3.2- Promotion of investment activities
To attract investors, companies must demonstrate their ability to manage risk. They should help investors see the correlation between return and risk in order to guide their investment decisions.
A good risk management company is equivalent to a company that can effectively manage situations that arise during business operations. This is exactly what investors are looking for before making the decision to cooperate.
3.3- Save money for investment
By performing the necessary analysis, risk management can help companies calculate the costs associated with investments and business operations. From there, companies will take appropriate steps to reduce waste in investment activities.
3.4- Improving the effectiveness of corporate governance
Risk management provides the board and management with comprehensive information on risks and associated precautions. As a result, the business management process becomes much more efficient.
3.5- Effective support for companies in investment and business development activities
The proper execution of risk management activities also means that companies have an effective tool to gain new sources of income and create more value.
In addition, proper risk management also helps companies to increase the success rate when implementing projects and to ensure the integrity of the values inherent in the company.
4- Effective risk management method
4.1- Person in charge of management and risk management in the company
In risk management activities, the board of directors plays a strategic orientation role and determines the organizational structure of the corporate risk management function.
Meanwhile, heads of functional departments across the business are responsible for managing risk in day-to-day operations, raising awareness and communicating the benefits of risk management in their departments.
The role of internal audit is to ensure the effectiveness of risk management by carrying out assessments in accordance with established audit programs and plans.
If the size of the company is too large, the manager can set up a separate department specializing in risk management. The main tasks of this department are:
– Develop risk management policies and strategies.
– Lead risk management activities at strategic and functional levels.
– Build a culture of risk awareness and train in risk management skills.
– Develop risk management policies and organizations in each functional direction of the company.
– Design, build and control the risk management process.
– Coordinate activities related to risk management in the company.
– Develop contingency processes and programs to respond to risks.
– Prepare risk management reports for the board of directors and corporate partners.
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4.2- Enterprise risk management process
For effective enterprise risk management, you can follow the following process:
Step 1: Identify the risk
As mentioned, companies can face many different types of risks in the course of their activities. Therefore, the first step to take is to identify precisely the risks that your business may face.
You need to identify as many risk factors as possible. If your company uses risk management software solutions, update all relevant information in the system so that everyone who has access to it can monitor it.
Step 2: Analyze the risk
Once you have identified the types of risks that may be encountered, you must carry out an analysis of these.
You will have to find out what the extent of the risk is, how serious it is. More importantly, you need to understand the relationship between risk and other business factors.
Step 3: Assess the risk
Businesses can face many different risks. Therefore, you need to evaluate and rank them to organize processing priority.
You can assess risk based on how it affects your goals and the likelihood of it occurring. High-risk risks require immediate intervention. Low-level risks may not require management intervention.
Step 4: Manage the risks
All risks must be treated and prevented as soon as possible. You can use the following four options to effectively manage risk:
– Eliminate risks.
– Take risks.
– Reduce risks.
– Risk sharing.
Step 5: Monitor and Monitor Risk Management
There are a few risks that cannot be completely eliminated, such as market and environmental risks. In this case, you can simply follow them.
In addition, you should also closely monitor risk management to closely manage factors affecting risk, assess the adequacy of applied risk treatment plan, and discover new risks.
5. Closing
In short, risks always exist in parallel with the company’s business process. In addition, they are constantly and flexibly changing.
Therefore, companies must constantly analyze, update and make appropriate assumptions to cover the entire business situation and issues that may arise.
Hopefully, the information on enterprise risk management that Ms. Uptalent has just shared in this article will be useful to you. Good luck!
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