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The Importance of Risk Management

Published
19th Feb, 2024
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    The Importance of Risk Management

    How do we buffer ourselves from life’s uncertainties? Nobody can cheat death, but we do take precautions to protect ourselves and our loved ones.  This is true even in businesses as we have so well seen during the economic meltdown that occurred in the past years. Giant organizations crumbled, going from being among the most respected to the most busted. The burst in the economic bubble forever changed how organizations view and handle risk. Companies have a renewed focus on their risk management strategies so that they can identify risks before they become lethal and protect their business interests without going under.

    Any organization is prone to five basic risks. These are development, manufacturing, sales and marketing, profit and loss, and future growth risk. While organizations of any size need to have an effective strategy in place, it is more important if a business has multiple operation sites, has operations overseas, has many suppliers or subcontractors, has several processes, or is a conglomerate.

    Such organizations can face threat from internal or external sources. Internal risks arise as a consequence of the business itself and hence can be predicted and mitigated. These could arise due to personnel problems, technology issues, or physical factors.

    External factors are more difficult to predict and hence to mitigate. These could arise due to an unpredictable economy, unstable politics, or natural calamities.

    Understanding the types of risk is the first step towards mitigating them.  Once that is done, organizations should work towards eliminating or avoiding the risk. For this they need to have a transparent risk management strategy that is approved by all the stakeholders, is inclusive, and has the tools to handle threats and convert them into potential opportunities that will benefit the business.

    But these days, there is also a new kind of threat emerging. With the internet blurring the personal and social lines, companies have to protect themselves and their customers’ sensitive data from internet breach and privacy violations.

    New age risks require new age mitigation policies, and organizations that want to survive into the next generation must be able to implement these.

    How do we buffer ourselves from life’s uncertainties? Nobody can cheat death, but we do take precautions to protect ourselves and our loved ones.  This is true even in businesses as we have so well seen during the economic meltdown that occurred in the past years. Giant organizations crumbled, going from being among the most respected to the most busted. The burst in the economic bubble forever changed how organizations view and handle risk. Companies have a renewed focus on their risk management strategies so that they can identify risks before they become lethal and protect their business interests without going under.

    Any organization is prone to five basic risks. These are development, manufacturing, sales and marketing, profit and loss, and future growth risk. While organizations of any size need to have an effective strategy in place, it is more important if a business has multiple operation sites, has operations overseas, has many suppliers or subcontractors, has several processes, or is a conglomerate.

    Such organizations can face threat from internal or external sources. Internal risks arise as a consequence of the business itself and hence can be predicted and mitigated. These could arise due to personnel problems, technology issues, or physical factors.

    External factors are more difficult to predict and hence to mitigate. These could arise due to an unpredictable economy, unstable politics, or natural calamities.

    Understanding the types of risk is the first step towards mitigating them.  Once that is done, organizations should work towards eliminating or avoiding the risk. For this they need to have a transparent risk management strategy that is approved by all the stakeholders, is inclusive, and has the tools to handle threats and convert them into potential opportunities that will benefit the business.

    But these days, there is also a new kind of threat emerging. With the internet blurring the personal and social lines, companies have to protect themselves and their customers’ sensitive data from internet breach and privacy violations.

    New age risks require new age mitigation policies, and organizations that want to survive into the next generation must be able to implement these.

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    Profile

    Kevin D.Davis

    Blog Author

    Kevin D. Davis is a seasoned and results-driven Program/Project Management Professional with a Master's Certificate in Advanced Project Management. With expertise in leading multi-million dollar projects, strategic planning, and sales operations, Kevin excels in maximizing solutions and building business cases. He possesses a deep understanding of methodologies such as PMBOK, Lean Six Sigma, and TQM to achieve business/technology alignment. With over 100 instructional training sessions and extensive experience as a PMP Exam Prep Instructor at KnowledgeHut, Kevin has a proven track record in project management training and consulting. His expertise has helped in driving successful project outcomes and fostering organizational growth.

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