Risk Management
Are you familiar with the term “risk management?” Do you know how a risk management policy is applied in the business world and how an organization can use it to identify and manage threats?
Risk management is a huge aspect of both local and international business. At its most basic level, risk management is the process of identifying the risk to a business and putting in place strategies to manage the risk. Some of these strategies can involve avoiding the risk altogether, or transferring it to another company to manage. Other strategies include minimizing the risk and accepting ownership or responsibility for it.
Let's take a look at a simple example of risk management. A company that manufactures cotton products has had a successful five years in business and has made consistent profits since it was established. However, its major cotton supplier has forecast industry wide problems with the cotton crop in the next year. A reduced amount of cotton will cause the company to manufacture less cotton products and will result in less of a profit. For this reason, the company has started to slowly reduce its output now, instead storing surplus cotton for the following year. The company has identified the potential risk to its business and has planned to work around it by protecting its cotton resources. This is a form of risk management.
Another traditional form of risk management is insurance. Businesses will take out insurance policies to protect them from a range of negative factors such as legal action by customers and employees, and from natural disasters such as floods and fires. Confidentiality clauses in business and employment contracts and data protection and security policies are also forms of risk management.
In order to implement a risk management policy, a company needs to carry out a full assessment. Most business experts recommend that a risk assessment should be conducted twice a year. The three areas most companies focus on relate to staff policies, insurance coverage and the skills and competencies of the company's management team.
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