What is risk management? Effective risk management model

Quản lý rủi ro là gì? Mô hình quản trị rủi ro hiệu quả

Every business faces different types of risk. To succeed and avoid failure in business activities, companies must find ways risk management effective.

So what is risk management? Readers, let’s learn some useful information on this subject through the following article by Ms. Uptalent to understand better!

1- What is risk management?
2- Types of risk management
3- What does risk management include?
4- Risk management model
5- Human resources in risk management

Senior Executive Recruitment

1- What is risk management?

Risk management in English is called “risk management”. It is a systematic, methodical and scientific process to identify, assess and manage risks in a reasonable way, saving the most resources.

These risks and threats can come from many different sources. Such as the risks of financial fluctuations, errors in strategic management, liability, natural disasters, etc.

By managing risk, companies can monitor and control the likelihood of risks occurring, the impact of unfortunate events, or optimizing opportunities. Therefore, these risks cannot derail business activities or corporate objectives.

In other words, risk management is an effective tool that can help companies achieve their business development objectives and activities, and also a means for companies to better seize opportunities and improve their competitive position. on the market.

It can be said that effective risk management plays a very important role for companies that seek stability in the financial mechanism and the ability to improve outstanding performance.

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Moreover, applying a risk management framework is also a useful solution to align business practices with the corporate risk culture and it is also a stable future financial foundation for the organization.

2- Types of risk management

Depending on the type of risk, the probability of the risk occurring, the level of risk impact, you will have a plan and a suitable risk management plan.

There are currently four types of risk management strategies you can choose from, including:

2.1- Accept the risk

With this method, the company accepts the risk as an inevitable thing and does not take any measures to prevent or minimize the impact of the risk.

Although there is no action, this approach is not a negative option. Because in some cases, the cost of preventing a risk can exceed the loss caused by the risk.

While taking risks is a good option in some situations, you need to make sure your business has the strength to handle it when it happens. Ideally, you should choose to take risks only when the likelihood of the risk occurring is low and the damage is minimal.

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Risk management

2.2- Avoiding risks

Avoiding a risk means that you will not take any action that may cause a risk. For example, you plan to invest in a project, but after looking at it, the risk level is too high, so you just don’t invest, you won’t be afraid to take the risk.

However, once you choose the option to completely avoid risk, you are also missing out on good trading opportunities. Therefore, you should only choose this risk management option if you consider that the risk may have a significant impact on your business.

In addition, you should also ensure that you have carefully analyzed the risks, the level of impact and made an informed decision. Because you never know what the investment you give up may bring to the business.

2.3- Risk reduction

Risk minimization means you will find ways to reduce the likelihood of a risk occurring or reduce its impact.

This is a very commonly applied risk management method. With this method, you will need to come up with a plan and take the steps you can to control the risks in the most effective way.

An obvious example of risk reduction is that manufacturing companies often apply a quality management system to the production process to reduce risks caused by incorrect product specifications.

2.4- Transfer of risks

The transfer of risk usually takes the form of a contract. The best examples are insurance contracts or joint ventures between companies.

With this management method, the risk will be transferred to a third party who will bear the risk on behalf of the organization.

In other words, the risk will not disappear completely. Only the risk is transferred from your company to another organization.

What is risk management?

3- What does risk management include?

Depending on the size and characteristics of each company, risk management will be different. However, the main tasks often include:

– Develop risk management policies in line with business objectives and strategies.

– Develop tools and models to measure, control and monitor the types of risks that companies may encounter, and at the same time must promptly notify superiors and relevant departments of possible risks.

– Perform statistics on data related to the company’s commercial activities, coordinate with other departments to build limit indicators adapted to the company’s risk appetite.

– Quickly monitor, monitor and report compliance with approved limit indicators.

– Evaluate and monitor the company’s compliance with risk management regulations.

– Support the development and updating of policies, regulations and procedures related to the company’s business activities to ensure that they are always consistent with the actual situation of the company and legal regulations.

– Monitor compliance with legal regulations in the company, promptly issue warnings when threats are detected.

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– Participate in the planning of risk management strategies, responsible for presiding over the implementation of the approved risk management strategy.

– Study international standards and national regulations for risk management, thus ensuring that the company’s risk management system always meets international requirements and the actual situation in Vietnam.

Risk management model

4- Risk management model

4.1- The risk management model follows the style of risk assessment and proposes an appropriate risk management strategy

Under this model, business risks will be carefully assessed based on two factors: risk frequency and level of influence.

After the evaluation, the company will make a corresponding decision. Specifically:

– The risks are frequent, the level of impact is significant, companies should not pursue such activities.

– Risks do not occur often, the level of impact is significant, companies need to find ways to transfer risk.

– Risks occur frequently, the level of impact is low, companies should use the internal risk control system.

– Risks rarely occur, the level of impact is low, companies have to accept the risk and have nothing to do.

4.2- The three-loop defense risk management model

With this model, companies will set up three towers of defense to manage risk. Specifically:

– The first round: Control and reduce risks at operational management level.

– The second round: Control and minimize the risks at the operational management level within the company. This is an independent party, responsible for evaluating and monitoring the effectiveness of first-round risk management.

– Third round: Internal audit to ensure business performance, risk management and internal control of the entire company.

Human resources in risk management

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4.3- PPRR risk management model

It is a risk management model that includes four steps:

– Prevention: Prevention.

– Preparation: Get ready.

– Answer: Answer.

– Recovery: Recovery.

This model is an effective method to help companies adopt a comprehensive approach to risk control and management. This can help businesses save a lot of time and money when faced with risk.

The PPRR model has the advantage of helping companies predict the impact of risks on the supply chain, suppliers and customers. As a result, businesses can plan accordingly to minimize risk damage.

5- Human resources in risk management

Business leaders tend to only want to focus their staff on developing business operations, but don’t want to disperse human resources to manage hidden risks that aren’t yet visible.

Even many people disagree with risk management strategies, even though they have helped companies succeed in the past.

Therefore, companies must have a separate department specializing in risk management. The size of this department will depend on the characteristics and requirements of each company. However, it is still under the control of business leaders.

The most important responsibility of the department is to maintain close relationships with the company’s leaders to ensure the necessary level of management attention to the risks that the company may face.

Business risk management is not easy. It is a long process that requires companies to correctly perceive the risks and take the appropriate measures.

I hope this article by Ms. Uptalent has helped you understand what risk management is. Please continue to follow Uptalent for more valuable insights! Good luck!

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