14 Jun Factors that make Risk Management Vital for Businesses
Business risk management is a process that enterprises employ to manage risk. This is done by assessing the situation and devising response strategies that would minimize the damage caused. The concept of risk management starts with the identification of the various kinds of risk, then taking steps to minimize the risks and finally monitoring the effectiveness of these steps. Therefore, it can be said that managing risk is a multi faceted exercise that helps you secure your business from the dangers inherent in every market. So to keep your business safe, you will need to have a proper and reliable risk management framework in place. However since business and risk go hand in hand completely eliminating risks may not be fully achievable. Nevertheless from the steps needed minimize your risks identification of risk is vital and we will now discuss this more.
The risk identification process includes identifying legal, physical, financial, human, intellectual and technological risk factors. It also involves measuring the risk probability and also assessing the possible frequency of risk occurrence. In this assessment you have to evaluate which risk factors that have the highest chances of occurrences and those with the least probability of occurrence. The evaluation has also to be based on likely severity of the impact that different risks may have on your business.
The different types of risk like legal risks, physical risks, contract risk, financial risks, intellectual property risks all need to be addressed individually. Starting with contract risk particularly you have to careful about the legal implication of contracts and agreements. Another risk to watch out for is regulatory risks that can put pressure on your business. This is because if you fail to comply with regulations then the eventual penalties can affect your business finances negatively. It is also important to consider physical risks which can result from natural calamities or human errors. With this however, proper planning can minimize their occurrence.
With financial risks they can be limited by taking decisions to maintain greater caution in financial transactions. With such transactions, it will also be beneficial to have more information about the company or person with whom you are conducting business. With intellectual property risks, this involves infringement or unauthorized copying of your intellectual assets like inventions, music, work of art or literature. You can however minimize these risks and protect your intellectual assets through copyrights and patents.
Failing to do so could cost you and your business quite dearly as intellectual property can now be classified as intangible assets and can from a large part of the value of your company. Irrespective of the risk what is important to note is the potential damage they can do to your business growth and revenues if they are not properly mitigated with risk management plans. Therefore, it is worth devoting time and effort tor to come up with a concrete risk management plan that will protect your business and ensures its long term survival and growth.