risk management importance essay

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What Is Risk Management & Why Is It Important?

• 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

Access your free e-book today.

What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

• Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
• Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
• Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

• Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
• Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
• Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
• Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

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Tech Accelerator

Risk management is the process of identifying, assessing and controlling threats to an organization's capital, earnings and operations. these risks stem from a variety of sources, including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural disasters. this comprehensive guide explains why risk management is more important than ever and leads readers through how to establish a risk management plan, with hyperlinked articles with additional, essential information., what is risk management and why is it important.

• Linda Tucci, Industry Editor -- CIO/IT Strategy
• Craig Stedman, Industry Editor

Risk management is the process of identifying, assessing and controlling threats to an organization's capital, earnings and operations. These risks stem from a variety of sources, including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural disasters.

A successful risk management program helps an organization consider the full range of risks it faces. Risk management also examines the relationship between different types of business risks and the cascading impact they could have on an organization's strategic goals.

This holistic approach to managing risk is sometimes described as enterprise risk management because of its emphasis on anticipating and understanding risk across an organization. In addition to a focus on internal and external risk threats, enterprise risk management (ERM) emphasizes the importance of managing positive risk. Positive risks are opportunities that could increase business value or, conversely, damage an organization if not taken, as the companies disrupted by Amazon, Netflix and other born-digital powerhouses will attest.

Indeed, the aim of any risk management program is not to eliminate all risk but to preserve and add to overall enterprise value by making smart risk decisions.

"We don't manage risks so we can have no risk. We manage risks so we know which risks are worth taking, which ones will get us to our goal, which ones have enough of a payout to even take them," said Forrester Research senior analyst Alla Valente, who specializes in governance, risk and compliance (GRC), third-party risk management, ERM and other risk-related topics.

Thus, a risk management program should be intertwined with organizational strategy. To link them, risk management leaders must first define the organization's risk appetite -- i.e., the amount of risk it is willing to accept to realize its objectives. Some risks will fit within the risk appetite and be accepted with no further action necessary. Others will be mitigated to reduce the potential negative effects, shared with or transferred to another party, or avoided altogether.

Every organization faces the risk of unexpected, harmful events that can cost it money -- or, in the worst case, cause it to close. This guide to risk management provides a comprehensive overview of the key concepts, requirements, tools, trends and debates driving this dynamic field. Throughout, hyperlinks connect to other TechTarget articles that deliver in-depth information on the topics covered here, so be sure to click on them to learn more.

Why is risk management important?

Risk management has perhaps never been more important than it is now. The risks that modern organizations face have grown more complex, fueled by the rapid pace of globalization. New risks are constantly emerging, often related to and generated by the now-pervasive use of digital technology. Climate change has been dubbed a "threat multiplier" by risk experts.

A recent external risk that initially manifested itself as a supply chain issue at many companies -- the COVID-19 pandemic -- quickly evolved into an existential threat, affecting the health and safety of employees, the means of doing business, the ability to interact with customers and corporate reputations.

Businesses made rapid adjustments to the threats posed by the pandemic. But, going forward, they are grappling with novel risks, including the ongoing issue of how or whether to bring employees back to the office, what can be done to make supply chains less vulnerable, inflation and the business and economic effects of the war in Ukraine.

In many companies, business executives and the board of directors are taking a fresh look at their risk management programs. Organizations are reassessing their risk exposure , examining risk processes and reconsidering who should be involved in risk management. Companies that currently take a reactive approach to risk management -- guarding against past risks and changing practices after a new risk causes harm -- are considering the competitive advantages of a more proactive approach. There is heightened interest in supporting business sustainability, resiliency and agility. Companies are also exploring how AI technologies and sophisticated GRC platforms can improve risk management.

Financial vs. nonfinancial industries. In discussions of risk management, many experts note that managing risk is a formal function at companies that are heavily regulated and have a risk-based business model.

Banks and insurance companies, for example, have long had large risk departments typically headed by a chief risk officer (CRO), a title still relatively uncommon outside of the financial industry. Moreover, the risks that financial services companies face tend to be rooted in numbers and therefore can be quantified and effectively analyzed using known technology and mature methods. Risk scenarios in finance companies can be modeled with some precision.

For other industries, risk tends to be more qualitative and therefore harder to manage, increasing the need for a deliberate, thorough and consistent approach to risk management, said Gartner analyst Matt Shinkman, who leads the consulting firm's enterprise risk management and audit practices. "Enterprise risk management programs aim to help these companies be as smart as they can be about managing risk," he added.

Traditional risk management vs. enterprise risk management

Traditional risk management often gets a bad rap these days compared to enterprise risk management . Both approaches aim to mitigate risks that could harm organizations. Both buy insurance to protect against a range of risks -- from losses due to fire and theft to cyber liability . Both adhere to guidance provided by the major standards bodies. But traditional risk management, experts argue, lacks the mindset and mechanisms required to understand risk as an integral part of enterprise strategy and performance.

For many companies, "risk is a dirty four-letter word -- and that's unfortunate," said Forrester's Valente. "In ERM, risk is looked at as a strategic enabler versus the cost of doing business."

"Siloed" vs. holistic is one of the big distinctions between the two approaches, according to Shinkman. In traditional risk management programs, for example, risk has typically been the job of the business leaders in charge of the units where the risk resides. For example, the CIO or CTO is responsible for IT risk, the CFO is responsible for financial risk, the COO for operational risk and so on. Departments and business units might have sophisticated systems in place to manage their various types of risks, Shinkman explained, but the company can still run into trouble by failing to see the relationships among risks or their cumulative impact on operations. Traditional risk management also tends to be reactive rather than proactive.

"The pandemic is a great example of a risk issue that is very easy to ignore if you don't take a holistic, long-term strategic view of the kinds of risks that could hurt you as a company," Shinkman said. "A lot of companies will look back and say, 'You know, we should have known about this, or at least thought about the financial implications of something like this before it happened.'"

In enterprise risk management, managing risk is a collaborative, cross-functional and big-picture effort. An ERM team , which could be as small as five people, works with the business unit leaders and staff to debrief them, help them use the right tools to think through the risks, collate that information and present it to the organization's executive leadership and board. Having credibility with executives across the enterprise is a must for risk leaders of this ilk, Shinkman said.

These types of experts increasingly come from a consulting background or have a "consulting mindset," he said, and they possess a deep understanding of the mechanics of business. Unlike in traditional risk management, where the head of risk typically reports to the CFO, the heads of enterprise risk management teams -- whether they hold the chief risk officer title or some other title -- commonly report to the CEO, an acknowledgement that risk is part and parcel of business strategy.

In defining the chief risk officer role, Forrester makes a distinction between the "transactional CROs" typically found in traditional risk management programs and the "transformational CROs" who take an ERM approach. The former work at companies that see risk as a cost center and risk management as an insurance policy, according to Forrester. Transformational CROs, in the Forrester lexicon, are "customer-obsessed," Valente said. They focus on their company's brand reputation, understand the horizontal nature of risk and define ERM as the "proper amount of risk needed to grow," as Valente put it.

Risk averse is another trait of organizations with traditional risk management programs. But as Valente noted, companies that define themselves as risk averse with a low risk appetite are sometimes off the mark in their risk assessments .

"A lot of organizations think they have a low risk appetite, but do they have plans to grow? Are they launching new products? Is innovation important? All of these are growth strategies and not without risk," Valente said.

Risk management glossary

Many terms are used to define the various aspects and attributes of risk management. Click on the hyperlinks below to learn more about some useful terms to know.

What is pure risk?

What is residual risk?

What is a risk profile?

What is integrated risk management?

What is risk reporting?

Risk management process

The risk management discipline has published many bodies of knowledge that document ways for organizations to manage risk. One of the best-known resources is the ISO 31000 standard . Formally called ISO 31000:2018 Risk management -- Guidelines, it was developed by the International Organization for Standardization, a standards body commonly known as ISO.

ISO 31000 outlines a risk management process that can be used by any type of entity and includes the following steps for identifying, assessing and managing risks:

• Identify the risks faced by your organization.
• Analyze the likelihood and possible impact of each one.
• Evaluate and prioritize the risks based on business objectives.
• Treat -- or respond to -- the risk conditions.
• Monitor the results of risk controls and adjust as necessary.

These steps are straightforward, but risk management committees should not underestimate the work required to complete the process. For starters, it requires a solid understanding of what makes the organization tick. To obtain that, the ISO 31000 process also includes an upfront step to establish the scope of risk management efforts, the business context for them and a set of risk criteria. The end goal is to know how each identified risk relates to the maximum risk the organization is willing to accept and what actions should be taken to preserve and enhance organizational value.

When identifying risks, it is important to understand that, by definition, something is only a risk if it has a business impact, according to risk expert Greg Witte, a senior security engineer for Huntington Ingalls Industries and an architect of frameworks developed by the National Institute of Standards and Technology ( NIST ) on cybersecurity, privacy and workforce risks, among others. For example, the following four factors must be present for a negative risk scenario, according to guidance from NISTIR 8286A , a report on identifying cybersecurity risk in ERM initiatives that NIST published in 2021:

• A valuable asset or resources that could be impacted.
• A source of a threatening action that would act against the asset or resources.
• A preexisting condition or vulnerability that enables the threat source to act.
• Some harmful impact that occurs from the threat source exploiting that vulnerability.

While the NIST criteria pertains to negative risks, similar processes can be applied to managing positive risks.

Top-down, bottom-up. In identifying risk scenarios that could impede or enhance an organization's objectives, many risk committees find it useful to take a top-down, bottom-up approach, Witte said. In the top-down exercise, leadership identifies the organization's mission-critical processes and works with internal and external stakeholders to determine the conditions that could impede them. The bottom-up perspective starts with the threat sources -- earthquakes, economic downturns, cyber attacks, etc. -- and considers their potential impact on critical assets.

The final task in the risk identification step is for organizations to record their findings in a risk register, which helps track the risks through the subsequent steps of the risk management process. An example of such a risk register can be found in the NISTIR 8286A report cited above.

Risk management standards and frameworks

As government and industry compliance rules have expanded over the past two decades, regulatory and board-level scrutiny of corporate risk management practices have also increased, making risk analysis , internal audits, risk assessments and other features of risk management a major component of business strategy. How can an organization put this all together?

The rigorously developed -- and evolving -- frameworks developed by the risk management field can help. Here is a sampling of them, starting with brief descriptions of the two most widely recognized frameworks, ISO 31000 and the COSO enterprise risk management framework offered by the Committee of Sponsoring Organizations of the Treadway Commission, better known as COSO:

• COSO ERM framework. Launched in 2004, the COSO framework was updated in 2017 to address the increasing complexity of ERM and highlight the importance of embedding risk considerations into business strategies and linking risk management and operational performance. It defines key concepts and principles of ERM, suggests a common ERM language and provides clear directions for managing risk. Developed by consulting firm PwC with input from COSO's five member organizations and external advisors, the updated framework is a set of 20 principles organized into five interrelated components:
• Governance and culture.
• Strategy and objective-setting.
• Performance.
• Review and revision.
• Information, communication and reporting.
• ISO 31000. Released in 2009 and revised in 2018, the ISO standard includes a list of ERM principles, a framework to help organizations apply risk management mechanisms to operations, and the process detailed above for identifying, evaluating and mitigating risks . Developed by ISO's risk management technical committee with input from ISO national member bodies, ISO 31000:2018 is a shorter and more concise document than its predecessor and includes more strategic guidance on ERM. The newer version also emphasizes the important role of senior management in risk programs and the integration of risk management practices throughout the organization.
• BS 31100. The current version of this British Standard risk management code of practice was issued in 2021 and provides a process for implementing concepts described in ISO 31000:2018 -- including functions such as identifying, assessing and responding to risks and then reporting on and reviewing risk management activities.

Other frameworks that focus specifically on IT and cybersecurity risks are also available. They include NIST's Risk Management Framework , which details a process for integrating security, data privacy and cybersecurity supply chain risk management initiatives into the system development lifecycle, and the ISACA professional association's COBIT 2019, an information and technology governance framework that supports IT risk management efforts.

Enterprises might also consider establishing customized frameworks for specific categories of risks. Carnegie Mellon University's enterprise risk management framework, for example, examines potential risks and opportunities based upon the following risk categories: reputation, life/health safety, financial, mission, operational and compliance/legal.

In addition, various risk maturity models can be used to benchmark risk management capabilities and assess their maturity levels. The most prominent one is the Risk and Insurance Management Society's Risk Maturity Model (RMM), which was developed in 2005 with software vendor LogicManager and updated in 2022. The revamped RMM helps risk professionals assess their programs in five categories: strategy alignment; culture and accountability; risk management capabilities; risk governance; and analytics. Other risk maturity models are available from the Risk Management Association, consulting firm Investors in Risk Management and the Organisation for Economic Co-operation and Development's Forum on Tax Administration.

The three lines model developed by the Institute of Internal Auditors (IIA) offers another type of standardized approach to support governance and risk management initiatives. Originally called the three lines of defense before being renamed in 2020, the IIA's model outlines the different roles that business executives, risk and compliance managers and internal auditors should play in risk management efforts, with a governing body providing oversight and accountability.

What are the benefits and challenges of risk management?

Effectively managing risks that could have a negative or positive impact on capital, earnings and operations brings many benefits. It also presents challenges, even for companies with mature GRC and risk management strategies.

Benefits of effective risk management include the following:

• Increased awareness of risk across the organization.
• More confidence in organizational objectives and goals because risk is factored into strategy.
• Better and more efficient compliance with regulatory and internal compliance mandates because compliance is coordinated.
• Improved operational efficiency through more consistent application of risk processes and controls.
• Improved workplace safety and security for employees and customers.
• A competitive differentiator in the marketplace.

The following are some of the challenges risk management teams should expect to encounter:

• Expenditures go up initially, as risk management programs can require expensive software and services.
• The increased emphasis on governance also requires business units to invest time and money to comply.
• Reaching consensus on the severity of risk and how to treat it can be a difficult and contentious exercise and sometimes lead to risk analysis paralysis.
• Demonstrating the value of risk management to executives without being able to give them hard numbers is difficult.

How to build and implement a risk management plan

A risk management plan describes how an organization will manage risk. It lays out elements such as the organization's risk approach, the roles and responsibilities of risk management teams, resources that will be used in the risk management process and internal policies and procedures.

ISO 31000's overall seven-step process is a useful guide to follow for developing a plan and then implementing an ERM framework , according to Witte. Here is a more detailed rundown of its components:

• Communication and consultation. Since raising risk awareness is an essential part of risk management, risk leaders must also develop a communication plan to convey the organization's risk policies and procedures to employees and relevant parties. This step sets the tone for risk decisions at every level. The audience includes anyone who has an interest in how the organization takes advantage of positive risks and minimizes negative ones.
• Establishing the scope and context. This step requires defining both the organization's risk appetite and risk tolerance -- the latter is how much the risks associated with specific initiatives can vary from the overall risk appetite. Factors to consider here include business objectives, company culture, regulatory requirements and the political environment, among others.
• Risk identification. This step defines the risk scenarios that could have a positive or negative impact on the organization's ability to conduct business. As noted above, the resulting list should be recorded in a risk register and kept up to date.
• Risk analysis. The likelihood and impact of each risk is analyzed to help sort risks. Making a risk heat map can be useful here; also known as a risk assessment matrix , it provides a visual representation of the nature and impact of a company's risks. An employee calling in sick, for example, is a high-probability event that has little or no impact on most companies. An earthquake, depending on location, is an example of a low-probability risk event with high impact. The qualitative approach many organizations use to rate the likelihood and impact of risks might benefit from a more quantitative analysis. The FAIR Institute, a professional association that promotes the Factor Analysis of Information Risk framework for cyber-risk quantification , has examples of the latter approach.

• Risk evaluation. Here is where organizations assess risks and decide how to respond to them through the following approaches:
• Risk avoidance , when the organization seeks to eliminate, withdraw from or not be involved in the potential risk.
• Risk mitigation , in which the organization takes actions to limit or optimize a risk.
• Risk sharing or transfer, which involves contracting with a third party (e.g., an insurer) to bear some or all costs of a risk that might or might not occur.
• Risk acceptance, when a risk falls within the organization's risk appetite and tolerance and is accepted without taking any risk reduction measures.
• Risk treatment. This step involves applying the agreed-upon controls and processes and confirming they work as planned.
• Monitoring and review. Are the controls working as intended? Can they be improved? Monitoring activities should measure performance and look for key risk indicators that might trigger a change in strategy.

Risk management best practices

A good starting point for any organization that aspires to follow risk management best practices is ISO 31000's nine principles of risk management. According to ISO, a risk management program should meet the following objectives:

• Create and protect value for the organization, as an overarching principle.
• Be integrated into overall organizational processes.
• Be systematic, structured and comprehensive.
• Be based on the best available information.
• Be tailored to individual projects.
• Account for human and cultural factors, including potential errors.
• Be transparent and all-inclusive.
• Be dynamic and adaptable to change.
• Be continuously monitored and improved upon.

Another best practice for the modern enterprise risk management program is to "digitally reform," said security consultant Dave Shackleford. This entails using AI and other advanced technologies to automate inefficient and ineffective manual processes. ERM and GRC platforms that include AI tools and other features are available from various risk management software vendors . Organizations can also take advantage of open source GRC tools and related resources .

Risk management for career professionals

The following articles provide resources for risk management professionals:

What is a risk management specialist?

Top risk management skills and why you need them

Top enterprise risk management certifications to consider

Risk management limitations and examples of failures.

Risk management failures are often chalked up to willful misconduct, gross recklessness or a series of unfortunate events no one could have predicted. But an examination of common risk management failures shows that risk management gone wrong is more often due to avoidable missteps -- and run-of-the-mill profit-chasing. Here is a rundown of some mistakes to avoid.

Poor governance. The tangled tale of Citibank accidentally paying off a $900 million loan, using its own money, to Revlon's lenders in 2020 when only a small interest payment was due shows how even the largest bank in the world can mess up risk management -- despite having updated policies for pandemic work conditions and multiple controls in place. While human error and clunky software were involved, a federal judge ruled that poor governance was the root cause, although an appeals court overturned an order that the bank wasn't entitled to refunds from the lenders. Nonetheless, two months after the erroneous payment, Citibank was fined $400 million by U.S. regulators for "longstanding" governance failures and agreed to overhaul its internal risk management, data governance and compliance controls.

Overemphasis on efficiency vs. resiliency. Greater efficiency can lead to bigger profits when all goes well. Doing things quicker, faster and cheaper by doing them the same way every time, however, can result in a lack of resiliency, as companies found out during the pandemic when supply chains broke down. "When we look at the nature of the world … things change all the time," said Forrester's Valente. "So, we have to understand that efficiency is great, but we also have to plan for all of the what-ifs."

Lack of transparency. The scandal involving the New York governor's office underreporting coronavirus-related deaths at nursing homes in the state during 2020 and 2021 is representative of a common failing in risk management. Hiding data, a lack of data and siloed data -- whether due to acts of commission or omission -- can cause transparency issues. Avoiding that requires an enterprise-wide risk management strategy with common risk terminology, documented processes and centralized collection and management of key risk data.

Limitations of risk analysis techniques. Many risk analysis techniques, such as creating a risk prediction model or a risk simulation, require gathering large amounts of data. Extensive data collection can be expensive and is not guaranteed to be reliable. Furthermore, the use of data in decision-making processes can have poor outcomes if simple indicators are used to reflect complex risk situations. In addition, applying a decision intended for one small aspect of a project to the whole project can lead to inaccurate results.

Lack of risk analysis expertise. Software programs developed to simulate events that might negatively impact a company can be cost-effective, but they also require highly trained personnel to accurately understand the generated results.

Illusion of control. Risk models can give organizations the false belief that they can quantify and regulate every potential risk. This could cause an organization to neglect the possibility of novel or unexpected risks.

Risk management trends: What's on the horizon?

The spotlight that was shined on risk management during the COVID-19 pandemic has driven many companies to not only reexamine their risk practices but also to explore new techniques, technologies and processes for managing risk. As a look at the trends that are reshaping risk management shows, the field is brimming with ideas.

More organizations are adopting a risk maturity model to evaluate their risk processes and better manage the interconnectedness of threats across the enterprise. They are looking anew at GRC platforms to integrate their risk management activities, manage policies, conduct risk assessments, identify gaps in regulatory compliance and automate internal audits, among other tasks. Newer GRC features that risk management experts said should be considered include the following:

• Analytics for geopolitical risks, natural disasters and other events.
• Social media monitoring to track changes in brand reputation.
• Security systems to assess the potential impact of data breaches and cyber attacks.
• Third-party risk assessment tools to help strengthen supply chain risk management .

In addition to using risk management to avoid bad situations, more companies are looking to formalize how to manage positive risks to add business value.

They are also taking a fresh look at risk appetite statements. Traditionally used as a means to communicate with employees, investors and regulators, risk appetite statements are starting to be used more dynamically, replacing "check the box" compliance exercises with a more nuanced approach to risk scenarios. The caveat? A poorly worded risk appetite statement could hem in a company or be misinterpreted by regulators as condoning unacceptable risks.

More organizations are connecting their risk management initiatives and environmental, social and governance ( ESG ) programs, too. That's making sustainability risk management and efforts to address other kinds of ESG risks a higher priority for companies looking to make their operations more sustainable and ensure that they're acting in responsible and ethical ways.

Finally, while it's tough to make predictions -- especially about the future, as the adage goes -- tools for measuring and mitigating risks are getting better. Among the improvements? Internal and external sensing tools that detect trending and emerging risks.

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10 Reasons Why Risk Management is Important

13 October 2022 - Evotix

Risks are a daily occurrence in most businesses, so a system must be put in place to effectively control them. Risks inherently turn into incidents if not dealt with properly – not only harming employees, but also resulting in productivity loss, increased admin burden and unfortunate legal disputes.

When it comes to health and safety, risks can arise from a variety of sources at your workplace. These include chemicals and substances, electrical sources, equipment and machinery and even contagious illnesses.

Proactively managing risks and identifying sources can help ensure a business accurately works through a fall, fire or spillage. To be successful, investing in a health and safety risk management software can help ensure safe operations are prioritized.

What is Risk Management:

Health and safety risk management is the process of identifying, assessing and controlling threats to health and safety. It's a formal process that evaluates risks and lays out plans to eliminate or control them. Risk management is essential for any organization that proactively looks to prioritize safe operations and the well-being of their employees.

Importance of Risk Management in the Workplace:

Risk within the workplace has the potential to cause any number of unexpected outcomes. Unresolved risks can lead to unfavorable occurrences - from injuries and permanent workspace damage to legal liabilities, to name a few.

Your organization is responsible not only for complying with regulations, but for proactively protecting your organization and it’s people. By determining hazards and risks, assessing them for severity and then controlling them appropriately, your organization will experience an improved level of safety.

10 Reasons Why Risk Management is Important:

Health and safety risk management is invaluable to your organization in a multitude of ways. Here are a few benefits:

Reason 1: Crucial for Planning

Believe it or not, risk management strategy plays an important role in planning for the future. Through an increased awareness of hazards , and therefore possible risks, your department can create a strategy that effectively controls hazards and risks moving forward.

Reason 2: Informed Decision Making

Risk management in health and safety is a great tool for forward-thinking. Not only can you plan better with a more informed understanding of risk, but you can also make quicker decisions across business operations due to available the data. With more information, decisions can be made with more confidence.

Reason 3: Safer Work Environment

Greater visibility and awareness of risks within the workplace allows your employees and EHS department to proceed with appropriate training that will ensure safety.

Reason 4: Demonstrates Leadership

Risk management allows the implementation of a proactive risk management strategy. Such a strategy helps demonstrate to employees that leadership is serious about protecting both their physical and mental health. This will in turn help strengthen employee loyalty, retention and motivation.

Reason 5: Improved Employee Engagement and Productivity

Employees will always appreciate a safe working environment. Employees may feel encouraged by their employer’s dedication to providing and maintaining a safe working environment. This can translate to increased engagement and productivity. Your employees will be less likely to leave as a result of negligence on the part of the organization.

Reason 6: Improved Communication

When risk management is carried out correctly, the organization should have a good understanding of how the business is working together when it comes to health and safety. Forming a strategy can help you find gaps in your communication, which can then be strengthened. Strategies should prioritize visibility, which will stimulate communication.

Reason 7: Financial Savings

Incidents incur both direct and indirect costs. Direct costs consist of lost wages and medical treatment, while indirect costs include lost working hours, damage to property and diminished employee morale. These are only some of the costs of workplace accidents. Mitigating hazards can help prevent accidents from occurring, saving your organization the hefty financial and administrative burden of incidents. Not to mention you can help keep your staff in one piece!

Reason 8: Ensures Compliance with Regulations

Complying to the appropriate regulations is now non-negotiable and a breach in compliance could lead to serious legal repercussions. The identification of hazards in health and safety risk management helps your organization stay aware of any potential risks. A risk management strategy will follow regulations closely and leave no stone unturned when it comes to making sure your organization is working legally and safely.

Reason 9: Reduced Uncertainty

While of course it is impossible to prepare for every possible scenario and every issue, a health and safety risk management strategy can help you establish a system for dealing with both foreseeable and unexpected challenges that may arise. Having an organized and well-established system in place when it comes to risk will help minimize uncertainty throughout your organization.

Reason 10: Prevents Reputational Damage

If a risk spirals into a serious incident, the blow to brand reputation may be extremely detrimental. A damaged reputation can be difficult and expensive to fix. Even one event, as a result of an overlooked hazard or risk, can cause serious, irreversible damage to your company. Thanks to social media, criticisms aimed at the company can be much easier to spread and this can exacerbate reputational damage. Risk management can help stop such events in their tracks.

What are my next steps?

As you can see, health and safety risk management is filled with positive benefits for your people, your workplace and your business.

For best results when introducing and implementing a risk management system, consider a health and safety software solution that includes risk management. Leading Health and Safety Risk Assessment & Management Software allows you to do the following:

Embed safety into everything you do

Identify risks and assess all areas of business

Coach your people through microlearning

Report risks with simple, mobile tools

Use matrices to assess high-risk activities

Track all actions to completion once control measures are implemented

Make communication easier than before

Access all documents easily

If you’re passionate about making sure your employees work in a safe environment and go home happy and safe at the end of each day, don’t put off implementing a health and safety risk management system any longer. Each day without a health and safety risk management system in place is a day your organization remains vulnerable to unexpected hazards and risks.

Want an overview of our risk management software? Check out our EHS Hazard and Risk Management page .

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Essay on Risk Management

Students are often asked to write an essay on Risk Management in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Risk Management

What is risk management.

Risk Management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. These threats or risks could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters.

Importance of Risk Management

Risk Management is important because it prepares an organization to face uncertainties. It helps to understand potential risks and to make plans to minimize their impact. Proper risk management can reduce not only the likelihood of an event occurring, but also the magnitude of its impact.

Steps in Risk Management

Risk Management involves several steps. The first step is identifying the risks. The next step is analyzing the risk to understand its potential impact. The third step is evaluating or ranking the risk. The final step is treating or controlling the risk.

Risk Management Techniques

There are several techniques for managing risk. One is risk avoidance, where the aim is to eliminate all risks. Another technique is risk reduction, where steps are taken to reduce the severity of the loss. Risk retention and risk transfer are other techniques used in risk management.

250 Words Essay on Risk Management

Risk Management is a process that helps identify, assess, and control threats that could harm an organization. These threats or risks could be anything from financial problems, accidents, natural disasters, or even legal issues. The main goal of Risk Management is to lessen the impact of these risks.

Risk Management follows four main steps. First, we identify the risks. This means we look at what could possibly go wrong. Next, we assess the risks. We try to figure out how likely it is that these risks will happen and how much damage they could cause. Then, we work on ways to control these risks. This could mean coming up with a plan to prevent the risk or lessen its impact. Finally, we monitor the risks. We keep an eye on them to see if they change or if new risks come up.

Risk Management is very important because it helps organizations prepare for the unexpected. It helps them make plans that can prevent or lessen damage from risks. It also helps them save money that they might lose if these risks were to happen.

In conclusion, Risk Management is a necessary practice for all organizations. It helps them identify, assess, control, and monitor risks. By doing this, organizations can prevent or lessen the impact of these risks, saving them from potential damage and loss.

500 Words Essay on Risk Management

Risk Management is a process that helps you identify and control possible problems that might happen in the future. It’s like a safety net that prepares you for any unexpected events.

Why is Risk Management Important?

Risk Management includes four main steps:

1. Identifying the Risks: The first step is to find out what could go wrong. This could be anything from a machine breaking down to a sudden change in market trends. 2. Analyzing the Risks: Next, you need to understand how big the problem could be. This helps to decide which risks need the most attention. 3. Planning the Response: Once you know the risks, you can make plans to handle them. This could mean avoiding the risk, reducing its impact, or accepting it and making a plan to recover from it. 4. Monitoring the Risks: Finally, you need to keep an eye on the risks and how well your plans are working. This means you can make changes if needed.

Benefits of Risk Management

Risk management in everyday life.

So, Risk Management is a very helpful tool. It prepares us for the future and helps to avoid or reduce problems. It is used in businesses, but also in our everyday lives. By understanding and using Risk Management, we can make better decisions and be ready for whatever comes our way.

Apart from these, you can look at all the essays by clicking here .

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Risk Management - Free Essay Examples And Topic Ideas

Risk management involves identifying, assessing, and controlling threats to an organization’s capital and earnings. These threats could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. An essay on risk management might cover strategies to mitigate risks, the impact of risk management on business performance, and the evolution of risk management practices over time. This topic might also touch on various risk assessment models, the ethical aspects of risk management, and case studies illustrating the consequences of inadequate risk management. We have collected a large number of free essay examples about Risk Management you can find in Papersowl database. You can use our samples for inspiration to write your own essay, research paper, or just to explore a new topic for yourself.

Risk Management in Nursing Practice

Bowers (2014) identifies the need for the preservation of safety as the most crucial objective for mental health nursing. However, this is a very isolative environment with seclusion being a part of this treatment and intervention. Clifton et al (2017) argues that this could lead to possible deterioration of social inclusion, independence and communication. Shared decision-making (SDM) is a frequently utilized model for the purpose of approaching sensitive decisions (Stiggelbout et al, 2015). This process is where clinicians and patients […]

Risk Management of Innovation Projects

Abstract A company’s ability to create new products and services that differentiate them from the competition is becoming a key factor to ensure a business’ longevity in this ever-growing market. Because of this, organizations have continuously tried to launch innovation projects that ultimately fail in most cases due to the higher than normal levels of risk and uncertainty associated with these types of ventures. The purpose of this paper is to review and analyze the characteristics of radical innovation projects […]

Discuss the Importance of Data Management in Research

1. Definiton of Key terms Data management is a general term which refers to a part of research process involving organising, structuring, storage and care of data generated during the research process. It is of prime importance in that it is part of good research practice and it has a bearing on the quality of analysis and research output. The University of Edinburgh (2014) defines data management as a general term covering how you organize, structure, store and care for […]

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What is Risk Management?

A risk is any unverifiable event or condition that may influence our task(project). Not all dangers are negative. A few occasions or conditions can encourage our task. At the point when this occurs, we consider it a chance; however it's as yet dealt with simply like a hazard. A proactive task group attempts to determine potential issues previously they happen. This is the craft of hazard administration. The motivation behind hazard administration is to recognize the hazard factors for a […]

Effective Risk Management

Uncertainty bounds today's economy, and every organization needs a structured process for effective risk management to sustain a competitive edge (K. J., A., V. R., and U., 2017). Numerous corporate governance regulations, like the SOX Act 2002, COSO Enterprise Risk Management Framework 2004, Companies Act 2013, and Clause 49 of SEBI, have made the existence of a risk management committee mandatory. A risk management committee, a person, or a group of persons, is required at the top management level for […]

Citizen and Government Collaboration in Addressing Natural Disasters in Japan

Natural hazards are indeed inevitable, even during this time of pandemic. A massive 7.3 magnitude earthquake has jolted the northeastern coast of Japan, leaving 150 injured people last February 13, 2021. It’s considered an aftershock of the 2011 Great East Japan Earthquake because it happened just weeks before its 10th anniversary. The 7.3 magnitude earthquake caused widespread blackouts, affecting 950,000 households, and displaced around 240 people in Miyagi and Fukushima prefectures from their homes. The Japanese Intensity Scale logged it […]

Futuram’s Risk Management Strategy

Read the following story about this agricultural biotech firm carefully, then answer the questions at the end of the case. This story, all names, characters, and incidents described are fictitious. No identification with actual persons, companies, places, or products is intended or should be inferred. Normally, when Futuram is mentioned in newspapers, it's usually for a new genetically engineered seed. Yet this agricultural biotech firm, based in California, has turned to financial engineering to ensure its profits. At its January 2017 […]

IT Risk Management Techniques

Introduction In life, only two things are true about failure. One, it is common and second, nobody likes them. Failure is something that cannot be completely avoided but it is not absolute as well. Past failures become better lessons on which such failures doesn’t occur in the future. Modifications and changes made due to failures signal positive changes in the entity and scopes for improvement. The only irony in this case is that each failure comes at a certain cost. […]

Risk Policy, Management and Communication

I would like to thank the Municipal Administration and Water Supplies Department, State Government of Tamil Nadu, India for inviting me to speak about the current scenario and to give my recommendations for making P.N.Palayam a model town with regard to Sanitation. I am Priscilla, an Environmental Scientist, representing Bill and Melinda Gates Foundation, India. I have done my master’s in environmental science in 1996 and completed my Doctoral degree in Environmental Health at Johns Hopkins Bloomberg School of Public […]

Disaster Risk Management

"Disasters can happen to anyone at any time, but research says even the best disaster-recovery plans will not work exactly as envisioned (Drew & Tysiac, 2013). Huge amounts of destruction and suffering can lead to mental health and other issues for employees. This is why organizations should focus on their people's needs. Firms in the state of Florida and other natural disaster areas are well-advised to have business interruption insurance, which is structured to compensate businesses for time-frames when they […]

Effective Teamwork: Risk Management

Risk is the presence of uncertainty of results regarding present actions ( Shastri and Shastri, 2014 ). Risk arises due to occurrence of chance events, incubating and culminating in the changing dynamics of the environment. All functional areas of an organization are affected by risk. A single event can unleash a variety of risks. Risk is omnipresent, omnipotent and omniscient. Risk management is a process effected by the entity’s board of directors, management and other personnel, applied in strategy setting […]

Hazard Management in Foreign Exchange

Back Back is a term portraying the investigation and arrangement of cash, ventures, and other money related instruments. A few people want to isolate back into three unmistakable classifications: open fund, corporate fund, and individual fund. There is additionally the as of late rising region of social back. Conduct fund tries to distinguish the intellectual (e.g. enthusiastic, social, and mental) explanations for money related choices. Outside Exchange Outside trade is the transformation of one nation's money into another. In a […]

Impact of Natural Disasters on Risk Management

Research says threats of natural disasters may continue to rise due to the increase in the average temperature of the water in oceans (Tennyson & Diala, 2016). Weather events will be intense and frequent due to global warming. This will result in rising sea levels and other environmental changes. According to Tennyson and Diala, disaster preparedness is the total of all measures that have been taken and the policies that have been adopted to address a disaster before it occurs […]

Risk Management in Online Transactions

Abstract There has been a significant increase in the number of online transactions on various platforms. Online transactions are boosting the global economy by offering convenience and speed of the money transactions between merchants and customers. For online transactions to be successful, there is a need to have a reliable network that is enhanced by a security system to safeguard the information of the transactions. The networks used to secure online transactions are not entirely effective hence there is need […]

Risk Management in a Banking System

A risk is an essential part of our daily lives. Despite the complexity of this concept, we often and easily operate it in practice, describing a particular life situation. For us, a risk is primarily a possible profit or loss of something. Commercial activities, as well as any other activities related to the formulation and achievement of certain goals, include: situation analysis; strategy formulation; resource planning; organization of a process; measurement and evaluation of results; operational corrective strategic and tactical actions […]

Risk Management – Essential and Complete Corporate Governance System

Risk management is a known element of an essential and complete corporate governance system. It is defined as a mix of activities that effectively reduce the negative impact of risk exposure on the company's projected profits, cash flow, and consequently, the value of the organization. Effective risk management is regarded as an important factor that determines the survival and success of an organization. While risk management is not a new concept, it has recently garnered attention and become moreassertive in […]

Identifying and Managing Business Risks

Introduction A risk is a probability that something with an undesirable effect will occur. Risk management involves steps and policies taken by a company to eliminate these risks or reduce the possibility of their occurrence. A risk management plan is prepared to predict the risks, estimate their impact and severity, and suggest possible responses. Health Network allows clients to access the kind of healthcare services they require over the internet at the right locations. It faces several risks that can […]

The Effects Automation Technology has on Risk Management

Automation technology is the system of controlling a process by highly automatic means, resulting in reduced human intervention. This technology was created to relieve operators from continuous input. Automation benefits users by increasing safety, profitability, and productivity. By the use of machinery products are more predictable, consistent, and the cycle time of production is shorter than it would be if done by man. Though the idea of automatic technology seems fool proof there are disadvantages to it as well. Since […]

Risk Management Techniques for Satellite Programs

Successfully placing a satellite into space requires many elements of a very complicated process coming together, to allow for an on-schedule launch, and nominal operations of the system once on-orbit. Modern day government organizations and private sector companies have become adept at this process, as space launches occur with regularity all over the world. Despite the high success rates seen in the launch and operation of modern satellite systems, risk still pervades these programs, from writing requirements to the ready-for-launch' […]

Enterprise Risk Management Project

Coca-Cola Bottling Company Consolidated was formed 116 years ago in Greensboro North Carolina. Here they started to begin to produce and deliver an ironic brand there. It was all started by J.B. Harrison where he started selling the bottles. In 1955 they started to make 10,12, and 26 ounce family size and king sized bottles. In 1982 they first introduced the idea of Diet Coke. Also, in 2002 they celebrated their 100 year of business. Currently, the company's corporate offices […]

Assessment Credit Risk Management

Credit risk management practices is an issue of concern in financial institutions today and there is needto develop improved processes and systems to deliver better visibility into future performance. There have been controversies among researchers on the effect of credit management techniques adopted by various institutions. According to Saunders and Allen (2002), good selection strategy for risk monitoring is adopted by the credit unions implies good pricing of the products in line with the estimated risk which greatly affect their […]

Issue, Risk and Reputation Management

The proactive behavior, commonly associated with the initiative, creativity, and innovation, is required in today's organizations. It can be a positive differential in times of market turmoil and uncertainty. According to Coombs, the best way to prevent a crisis in an organization is to have a proactive management. Proactive behavior is an element of change and it impacts the company's performance. A proactive management seeks deliberately for changes and improvements, it anticipates the problems and chooses its own course to […]

Risk Management: Role in Security and Establishes the Importance of Assets Within a Company

According to the Principles of Information Security, "risk management is the process of identifying risk, assessing its relative magnitude, and taking steps to reduce it to an acceptable level." Risk management plays an important role in security and establishes the importance of assets within a company. Financial and economic decisions made by a company are heavily influenced by the way risk management is handled. There are many important aspects to risk management, such as: risk identification, risk assessment, and risk […]

Risk Management Section of your Company’s

Read the Risk Management section of your company's 10-K. Do not print the 10-K. In your own words, summarize the risk management strategy. Tie this into the Risk Factors that you wrote in Project 1. Netflix's risk management strategy includes the following: Retaining and expanding its customer base: Subscription fees are the major revenue source for Netflix. Its ability to produce and acquire quality content depends directly on retaining its current customers and attracting new ones. If Netflix cannot satisfy […]

Essay about Risk Management Techniques for Satellite Programs

Either way, this helps to burn down the consequence of only have a sole dedicated relay through redundancy. Another aspect a program manager should consider when assessing risk with ground relays points to the operations crews that run them. An example of a human error causing a space disaster is showcased in the 2009 collision of an Iridium Communications satellite and a defunct Russian communications satellite. With the Russian satellite out of commission, it rested on the Iridium satellite to maneuver […]

Risk Management and Insurance

As people, we are faced with the possibility of loss in our everyday lives. Be it a car accident, illness, Property loss, or even death. As early as the millennia B.C, modern profit insurance was demonstrated in a contract of a loan of trading capital to traveling merchants. The first insurance company formed in the United States was in Charleston, South Carolina during 1732. Later in 1752, Benjamin Franklin helped spread insurance by creating the Philadelphia Contributionship which ensured that […]

Facilities Management

Introduction In any big gathering, crowd control is essential. Sports facilities are protected through crowd control since, where there are many people gathered together there is a high chance for a danger to take place. Secondly, the crowd needs to be managed because when people are in a crowd they always take for granted that other people have the responsibility (Ammon & Unruh 2010). Thirdly, big gathering makes people assimilate changes at a lower phase since they make the process […]

Health Data Breach Response Plan: a Managed Care Organization’s Comprehensive Plan

Response plan on health data breach Introduction Security imperatives of preventing, responding to, and detecting breaches will finally end with good reason and appropriate rejoinder criteria implemented. Breaches in various companies have become inevitable despite efforts put in place to prevent their continuous occurrence. Once there is an unauthorized disclosure, compromise of protected data, or hacking of information that is protected, an organization is obliged to respond. Putting an effective response plan in place is not a small feat. Organization's […]

The Confluence of AAA4 Insurance and Virtual Reality Innovation

In today's fast-paced world, insurance remains a bedrock of financial security, shielding individuals from the uncertainties that life often throws our way. Among the plethora of insurance products, AAA4 insurance is notable for its specialized coverage options tailored to unique needs. When we merge the concept of AAA4 insurance with the burgeoning field of virtual reality (VR), an intriguing narrative unfolds, highlighting the transformative potential and unforeseen synergies between these two domains. AAA4 insurance is characterized by its bespoke coverage, […]

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Why Risk Management Is More Important Than Ever

There is no doubt that 2020 will go down as a year to remember. While the Covid-19 pandemic has had an enormous impact, the year has brought many challenges — from the forest fires in Australia at the beginning of the year to the Taal volcano eruption in the Philippines — followed by a long list of high- force hurricanes and widespread social unrest here in the US.  All of these have highlighted the reality of persistent, disruptive volatility.

And there is no reason to think that volatility will decrease; in fact, it is only likely to increase. As Matthew Bishop, an editor from the Economist, said in 2015, “In the rest of our lifetimes the pace of change will never again be as slow as it is today.” Within the last 20 years, we have seen the dot-com crash, the attacks of 9/11 and the global war on terror, the global financial crisis and now the pandemic. Extraordinary events are becoming the norm.

No individual or organization can predict specific risks. But organizations can and need to prepare for an uncertain and volatile future that includes climate change, technological disruption, geopolitical risk, threats to the global supply chain, and issues related to cyber-crime, data protection and privacy. As we have seen during the pandemic, some modern business practices (such as globalization and just-in-time inventory management) create risks of their own. And regulatory authorities around the world continue to evolve and expand their scope, addressing matters such as data protection and privacy along with money laundering, financial crime, violations of sanctions, bribery and corruption. 

The problem of maintaining business operations in an increasingly volatile and complex business environment calls for proactive, integrated solutions encompassing people, data and infrastructure. Organizations should establish well-defined direction from the top level so that there is clarity on how to act when challenges arise.

·       Connecting risk management more closely to business and front-office operations.  Organizations need to move at a rapid pace to deal with risks as they evolve, and this can’t be accomplished if risk management is sequestered somewhere in the back office. 

·       Getting better leverage from technology.  Emerging technologies such as machine learning and artificial intelligence show great promise in helping risk managers pinpoint specific risks and develop faster responses. Many risk teams, however, have yet to take full advantage of more mature technologies in areas including data, analytics and modeling. Among other benefits, these technologies can reduce the efforts on lower-risk areas and help managers focus their energies on real threats, to critical parts of the organization.  

·       Aligning risk policies with business strategy.  Many risk management failures indicate the right policy in support of the wrong strategy. Risk should collaborate closely with business lines and the overall enterprise to reach consensus on how risk is defined, measured, controlled, and mitigated. Collaboration also helps reduce duplication of effort.

·       Being active, not passive or reactive.   Risk managers need to do more than identify and mitigate potential risks. They can, for example, tap into external data sources to identify digital signals that provide early indicators of potential future problems. New technologies can help turn this data into insights and unearth previously un-seen business threats or opportunities.

One additional consideration: Risk leaders spend a lot of time considering how the function is structured and where it fits within the organization. While there is no “one size fits all” answer, the ability of risk managers to function effectively on a highly decentralized basis during the pandemic demonstrates how this issue has become somewhat of a red herring. Enterprises need central controls, but they also need what we call “sensors at the edges” to provide objective input from the front line and from outside the organization. 

Organizations are still dealing with the effects of the pandemic, but most are beginning to plan for whatever “business as usual” will look like going forward. Better risk management may not spot the next big disruptive event, but it can accelerate and shape a more effective organizational response to whatever waits for us.

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Risk management, meaning, and importance for companies

Checked : Suzanne S. , Michael T.

Latest Update 19 Jan, 2024

Table of content

Risk management: what is it?

Importance of risk management in business, risk management helps in risk identification, analysis, control, and treatment of the risk, avoid scams, data security, prevention of crime, prevents theft, conclusions.

The history of economic systems and financial markets in recent years has been characterized by many cases of crisis and, in the most pathological situations, of failures that have certainly left their mark. However, there is a very recurrent element that characterizes these negative situations. It is the misalignment between performance profiles and risk profiles within the decision-making system and corporate governance. The strong emphasis given to the need to achieve performance targets, especially in the short term, has often left little room for evaluation, and to quantify risk where possible associated with certain types of choices. The result was that there was a misalignment between the maximization of results compared to the capacity of companies and banking and financial companies to create value.

It is no coincidence, therefore, that one of the most important legacies that history has left us in recent years is the growing attention to risk assessment and management issues, in a word that is commonly called risk management.

What is risk management? This is the question that many people ask themselves when approaching the world of financial markets. Whether you are an investor, an entrepreneur or an aspiring one, you have found yourself in the position of having to understand exactly what risk management is and what the right techniques are to avoid the loss of your capital.

Risk management is the continuous process of identifying, analyzing, evaluating, and managing exposures to losses and controlling risk and financial resources to minimize the negative effects of a loss.

The main function of the set of risk management techniques is to maximize profits, trying to reduce the risk of losses.

The losses that the individual seeks to minimize with risk management can come from:

• financial risks
• operational risks
• political and environmental risks
• strategic risks

More extensively, risk management addresses the downsizing of all those factors that prevent an individual or a company from achieving its objectives.

Although accidental losses are unpredictable and unplanned, there are methods included in risk management that can make risk events more predictable.

The more predictable an event, the lower the risk as it can be prevented or minimized. Furthermore, unexpected expenses can be estimated and budgeted.

This is risk management, the process to make the losses more predictable. This is the definition that can be given of the whole set of techniques that seek to secure, to the extent possible, the investor's capital.

The key to proper risk management is to control all the functions of your risk management plan and make sure that they are necessary and effective to reduce the overall cost of operational risk.

Risks are part of life as much as they are part of any organization or company planning. It’s quite natural to face risks in your business that needs to be handled in such a way that it does not result in a loss to the business or business services that are provided. Risk management is the forecasting or evaluation of possible risks and identifying the process to avoid or overcome it. It utilizes the right methods and tools to handle the threat. With a risk management plan, you can always be prepared in advance and let the business not be affected by it. Here are a few reasons why risk management is essential for business.

One of the major tasks of risk management is to identify a risk when it is about to rise or has risen. It can categorize various risks related to financing, operations, strategic, and even referred to like the environment and the public. This would either help you to avoid the chance at the early stages or come up with plans on facing the risks.

Once a risk is identified, it is important to analyze it to see how it will affect the business and come up with measures to control or overcome it. Risk has to be treated carefully so that it doesn’t change the entire industry. The probabilities of loss and gain have to be discussed before preparing to deal with it.

Risk management helps your business to avoid scams and analyses how it would affect the image of your business. Further, they help your business by investigating the source of fraud and helps in filtering the scam. They also help in building up the tarnished image if involved in a scam or fake scams.

It assures that all your essential   data   regarding the business are safeguarded and does not fall into the wrong hands. Data security is vital in business, and the risk management team can help you with the necessary protection. They can also come up with data recovery, backups, and insurances for your business data to not lose it and affect your business.

They make sure that the business decisions you make are legally approved and help in preventing crime in business. Furthermore, they see to the security of your employees too and assure that laws are not broken. This helps in not just creating an impression about your business to your employees but also to visitors and consumers.

One of the major risks for a business company is the theft of an idea or data. This can lead to the loss of a company. With the right risk management team, they will assure that your thoughts and business plans are safe and are not leaked. With simple measures and tracking employees, it can be assured that data leakage does not happen through unfaithful employees. They also help in keeping an eye on the inventory.

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Risk management as a stream helps in securing your business to the next level. It is always best to have prevention, and having an active risk management team does precisely. It may seem scary to the possible risks. But with the right directions and solutions, it’s always easy to overcome them or even face them. Having a risk management team adds extra security to your business. It helps you in a-z of all the disasters, security, and risks of the business. If you don’t have a risk management team yet, it is high time you get one.

The growing challenges that characterize industrial, banking, insurance, and financial companies require the constant presence within the decision-making and control system of these organizations of skills and dedicated activities that allow them never to lose sight of the risk profile. It is a central theme in the life of companies. It is important, however, that this presence has the nature of a substance and does not only serve to comply with regulatory requirements or to construct façade solutions that serve no purpose concerning the responsible management of the business and the sustainability of the life of these companies over time.

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Essays on Risk Management

Risk management is a critical aspect of any business or organization, as it involves identifying, assessing, and prioritizing risks, and implementing strategies to minimize, monitor, and control the impact of these risks. Given the importance of risk management, it is essential to explore various essay topics related to this field in order to gain a deeper understanding of its principles and practices.

Importance of the Topic

The topic of risk management is crucial for businesses and organizations to understand and implement, as it can have a significant impact on their success and sustainability. By identifying potential risks and developing strategies to mitigate them, businesses can minimize the likelihood of financial losses, operational disruptions, and damage to their reputation. Additionally, effective risk management can also help businesses capitalize on opportunities and make informed decisions that lead to long-term growth and success.

Furthermore, risk management is not limited to just financial risks; it also encompasses areas such as cybersecurity, supply chain management, legal and regulatory compliance, and strategic planning. With the increasing complexity of business operations and the ever-changing global landscape, the need for effective risk management has become more critical than ever.

Advice on Choosing a Topic

When selecting a topic for a risk management essay, it is important to consider current and relevant issues within the field. This could include emerging risks such as cybersecurity threats, global pandemics, climate change, or geopolitical instability. Additionally, exploring case studies of successful risk management practices or analyzing the impact of risk management failures can provide valuable insights for an essay topic.

Another approach to selecting a topic is to focus on specific industries or sectors, such as healthcare, finance, manufacturing, or technology, and examine the unique risk management challenges and strategies within each. Additionally, considering the role of technology and data analytics in modern risk management practices can also be a compelling essay topic.

The field of risk management is vast and multifaceted, offering a wide array of essay topics to explore. By delving into the various aspects of risk management, from its fundamental principles to its application in different industries and contexts, students and professionals can gain a deeper understanding of its importance and relevance in today's business environment. Whether it is addressing emerging risks, analyzing case studies, or examining the role of technology, there are countless opportunities to delve into the complexities of risk management through essay writing. Ultimately, by selecting a relevant and compelling topic, individuals can contribute to the ongoing dialogue and advancement of risk management practices.

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What is Risk Management?

Risk management structures, response to risks, importance of risk management, risk analysis process, more resources, risk management.

The identification, analysis and response to risk factors affecting a business

Risk management encompasses the identification, analysis, and response to risk factors that form part of the life of a business . Effective risk management means attempting to control, as much as possible, future outcomes by acting proactively rather than reactively. Therefore, effective risk management offers the potential to reduce both the possibility of a risk occurring and its potential impact.

Risk management structures are tailored to do more than just point out existing risks. A good risk management structure should also calculate the uncertainties and predict their influence on a business. Consequently, the result is a choice between accepting risks or rejecting them. Acceptance or rejection of risks is dependent on the tolerance levels that a business has already defined for itself.

If a business sets up risk management as a disciplined and continuous process for the purpose of identifying and resolving risks, then the risk management structures can be used to support other risk mitigation systems. They include planning, organization, cost control, and budgeting . In such a case, the business will not usually experience many surprises, because the focus is on proactive risk management.

Response to risks usually takes one of the following forms:

• Avoidance : A business strives to eliminate a particular risk by getting rid of its cause.
• Mitigation : Decreasing the projected financial value associated with a risk by lowering the possibility of the occurrence of the risk.
• Acceptance : In some cases, a business may be forced to accept a risk. This option is possible if a business entity develops contingencies to mitigate the impact of the risk, should it occur.

When creating contingencies, a business needs to engage in a problem-solving approach. The result is a well-detailed plan that can be executed as soon as the need arises. Such a plan will enable a business organization to handle barriers or blockage to its success because it can deal with risks as soon as they arise.

Risk management is an important process because it empowers a business with the necessary tools so that it can adequately identify and deal with potential risks. Once a risk has been identified, it is then easy to mitigate it. In addition, risk management provides a business with a basis upon which it can undertake sound decision-making.

For a business, assessment and management of risks is the best way to prepare for eventualities that may come in the way of progress and growth. When a business evaluates its plan for handling potential threats and then develops structures to address them, it improves its odds of becoming a successful entity.

In addition, progressive risk management ensures risks of a high priority are dealt with as aggressively as possible. Moreover, the management will have the necessary information that they can use to make informed decisions and ensure that the business remains profitable.

Risk analysis is a qualitative problem-solving approach that uses various tools of assessment to work out and rank risks for the purpose of assessing and resolving them. Here is the risk analysis process:

1. Identify existing risks

Risk identification mainly involves brainstorming. A business gathers its employees together so that they can review all the various sources of risk. The next step is to arrange all the identified risks in order of priority. Because it is not possible to mitigate all existing risks, prioritization ensures that those risks that can affect a business significantly are dealt with more urgently.

2. Assess the risks

In many cases, problem resolution involves identifying the problem and then finding an appropriate solution. However, prior to figuring out how best to handle risks, a business should locate the cause of the risks by asking the question, “What caused such a risk and how could it influence the business?”

3. Develop an appropriate response

Once a business entity is set on assessing likely remedies to mitigate identified risks and prevent their recurrence, it needs to ask the following questions: What measures can be taken to prevent the identified risk from recurring? In addition, what is the best thing to do if it does recur?

4. Develop preventive mechanisms for identified risks

Here, the ideas that were found to be useful in mitigating risks are developed into a number of tasks and then into contingency plans that can be deployed in the future. If risks occur, the plans can be put to action.

Our business ventures encounter many risks that can affect their survival and growth. As a result, it is important to understand the basic principles of risk management and how they can be used to help mitigate the effects of risks on business entities.

Thank you for reading CFI’s guide to Risk Management. To keep learning and advancing your career, the following CFI resources will be helpful:

• Information Ratio
• Loss Aversion
• Major Risk for Banks
• Financial Risk Manager (FRM)
• See all risk management resources
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Project Risk Management Analytical Essay

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The ability to effectively prepare, prevent and manage key risks forms one of the most important concepts in project management. Understanding risks facilitates the ability of a management team to determine which risks are related and have greater implications to the whole project’s objectivity.

To effectively identify a project’s risks, it would be important to first ascertain possible uncertainties that may arise from the project choice such as influence, decision making and environmental impacts. Identifying risks in a housing project may be ranked on two major benchmarks. First, it would be the assessment of whether the risk will actually occur and second, the holistic impact that it would accrue to the whole project.

Project lifecycle is a term used with reference to the whole project execution. It describes a project from its beginning to completion. To begin with, the initiation phase determines a project’s feasibility and formally authorizes its kick off. Besides, it provides the necessary project description for the participants so as to enhance the flow of events during the project.

Planning provides the required definition for all the activities and also derives the necessary schedules that are to be followed during the project. To effectively manage all risks in a project, all parties and staff involved should be subjected to training on different risks, their mitigation and the need for addressing them as key problems.

In addition, monitoring is very critical as the project progresses to facilitate evaluation of whether the set targets are being met by the project implementers. Moreover, instantaneous analysis of possible considerations for improvement should be executed. As an extension of the monitoring process, further instantaneous assessment is critical in assessing possible emergent risks during the project. Finally, a risk management department or unit would help in coordinating the assessment of different risks in a project.

Introduction

The ability to effectively prepare, prevent and manage key risks forms one of the most important concepts in project management. To effectively manage risk, it is important to first identify possible uncertainties that may arise from the project choice (Toegel & Barsoux 2012, p. 58).

Understanding risks further facilitates the ability to critically understand the interconnected nature of the whole project as well as other uncertainties. This paper seeks to explore how risk may be managed effectively and who should be responsible for this task It uses housing project as an example to analyze the role of project managers in taking full control of their designs and decisions in order to reduce the levels of risk involved.

Identifying risks

Project management is the major determinant of organization’s ability to realize its objectives in different undertakings. Leavy (2010, p. 11) cites that understanding the risks involved provides necessary objectives for a project and generates the most effective models of achieving them.

To effectively identify a project’s risks, it would be important to first ascertain possible uncertainties that may arise from the project choice such as influence, decision making and environmental impacts. In identifying risks, Lucio and Giuliano (2010, p. 173) point out that it is imperative to analyze short and long-term objectives of a project.

In a housing project, a project manager should analyze the objectives of a project before examining possible implications on the resources to be involved for its completion. This is an effective project management approach aimed at curbing cost –related and economic effects risks.

Westerberg and Wincent (2008, p. 51) underscore the importance of identifying risks involved in a project. They highlight the role of project managers in the critical examination of budgetary provision. This is critical in establishing uncertainties on the funding of a project. Notably, this step should also incorporate professionalism and expected efficiencies.

Characterizing threats

Risk characterization facilitates the ability of a project management leadership to determine which risks are related and have greater implications to the whole project’s objectivity. Management theorists point out that it further facilitates the ability to critically understand the interconnected nature of the whole project as well as other risks (Shayne 2011, p. 85). As a result, their categorization would be based on the types of risks before subdividing them to further analysis through ranking.

Identifying risks in a housing project would be ranked on two major benchmarks. Dale (2012) points out that first; it would be the assessment of whether the risk will actually take place. Thereafter, the holistic impact that it would accrue to the whole project is examined.

As a result, ranking would include three levels. First level rank would be the high considerations with extreme risks such as timely finishing and involved costs. Then, the medium rank would include risks with slightly reduced implications such as the market conditions. The low rank would finally involve risks of much less concerns but still with a potential shifting to medium rank if not carefully addressed.

Findings from studies on projects and environmental impacts have pointed towards establishing a system where environmental impact risks are reduced (Sun & Wu 2011, p. 340). In a housing project, in order to facilitate effective realization of the project’s objectives, its risk matrix should address land environmental impact risks.

This should be considered due to the fact that the largest part of the housing would actually be located on land and therefore directly impacting on ecosystem. Addressing possible implications of the project to the environment would be critical in facilitating biodiversity conservation.

Project life cycle

Project lifecycle is a term used with reference to the whole project execution (Putkiranta 2012, p. 343). As a result, it describes a project from its beginning to completion. To begin with, the initiation phase determines the project feasibility and formally authorizes its kick off. Besides, it provides the necessary project description for the participants to enhance flow of events during the project. This phase usually begins earlier than the project kick off.

Then, planning provides the needed definition for all the activities and also derives the necessary schedules that are to be followed during the project. Of greater importance, as Sebestyén and Tóth (2014) point out is that it provides a management plan to be used during the project implementation phase.

The third phase, executing phase, is considered to be one of the most essential stages as it is an outcome of the previous two phases. It involves immediate execution of a project details according to a management plan. Notably, this phase provides the necessary basement for assessing the efficacy of the previous phase one and two.

According to project management scholars (Dale, 2012; Palmer, Dunford& Akin 2009, p. 234), the monitoring and controlling phase is used to monitor the application of all the project activities as well as the predetermined processes. Of greater importance in this stage is the ability to make necessary changes and implement them to enhance achievement of the objectives in a project.

Manzerolle and Smeltzer (2011, p. 330) indicate that this phase is very essential as it facilitates for alignment of the project with new development that can be used to promote achievements of the pre-established objectives. Finally, the closing phase provides the procedure for summing up the project through finalising and concluding the evaluation.

In most of the cases, Liker and Hoseus (2007, p. 232) argue that many projects’ last phase takes place as a major continuation to phase four. The ability to complete the lifecycle of a project effectively acts as a key item in pre-estimating the actual efficacy that will be achieved throughout the whole project.

Project decision making

Effective identification of key decisions in a project acts as a critical planning process in aiding robustness and reducing risks towards achieving a given objective. Piirainen and Lindqvist (2010) draw from the model of utility in decision making to indicate that identifying key decisions would follows a sequence where core activities are conducted before others. Agreeably, identifying key decision paths would be based on stages where activities would first be identified and analyzed as a factor of progression.

This is reflected in Suh et al. (2010, p. 215) perspective on risk management that key decision paths are critical in limiting risks. Such decisions would include mechanisms to address all the uncertainties such as market conditions, designing process and the owners’ organization. Options in this case would involve considerations facilitating timely finishing, increasing the management commitment and effecting the design for completion.

Cohen (2002, p. 53) uses contingency theory to advocates for careful planning in project management to limit loss. The theory calls for analytical outset in making key decisions for guiding a project. In view of the theory, project managers should be able to respond to internal and external forces through effective leadership practices.

This view concurs with the argument posed by Johnson (2002, p. 8) that though many project managers have their own pre-establishes standards in management; they should avoid rigidity by seeking a leadership that is flexible and accommodates new objectives and dynamic standards. This consideration is further echoed by Hopkins (2009, p. 28) who indicates that contingent change factors are especially very crucial in leadership practices.

The book “Crafting strategy that measures up” illustrates how active decisions can be reached by project managers. It points towards use of a decision tree. In it, Ahenkora and Peasah (2011, p. 278) point out that it is one of the best methods of providing cohesive structures that facilitate easier examination of options while facilitating the making of critical choices.

In risk management, the decision tree analysis would be effected in the whole project by considering all the possible alternatives and drawing out lines from the risks. Then, description of each solution and costing would be done to gauge its efficacy compared to others. Numbers involved in the tree analysis would include cost of the option, its probability, and expected efficiency.

Project tools for risk management

As indicated in the lifecycle description, different stages have varying tools that anchor their specific applications. Starting phase demands tools that that have the ability to factor the later processes application and therefore provide the correct platform for their precise fitting into the process. Project charter templates assist the managers to generate the project’s objectives, visions, and generating the possible deliverables at the end of the project (Putkiranta 2012, p. 343).

Business case template tool provides the manager with the correct platform for further evaluating the project to be undertaken, identify the alternatives that can be assimilated, their benefits and associated costs, and identifies the possible risks to be expected during the project.

In addition, the creative-pro office provides the manager with an effective alignment platform for factoring in time, duties to be completed, the team members, and provides a flexible system for enhancing adjustments. In this respect, a manager is able to prepare for a reconnaissance to assess the preparedness of the team to effect the project.

Organizing and planning phases are very critical stages in risk management as they dictate the ability of a project to be effectively implemented in the next phase. Martin, Oliver and Jacquelyn (2010, p.193) indicate that a project plan is used to identify the tasks for the phase, sum up all the efforts required for the phase, and establishing the necessary inter-dependencies. Resources and financial plan tools are employed to determine the required labour, responsibilities, and finances to effect the whole project.

Besides, a resource planning tool is also used to identifyequipment needs to facilitate the different applications during the project. Hertz (2012, p. 6) argues that the tools used during planning and organizing phase should be employed in a mastery mode to enhance later adjustments where needed for further objectivity.

Moreover, a communication plan as a tool is essential in effecting the necessary interlinks between the staff participating in the project, their immediate leaders, and their head offices to enhance cohesion (Winer 2009, p. 108).

As indicated earlier, the execution phase forms the main part of the project and indeed demands more care as it entails direct involvement with the clients and customers. It also forms the basis for assessment and monitoring of a project. Project time management tool is used to enhance a systematic flow of events as established in the management plan (Scott & Krempley 2012, p.18).

Besides, the cost management ensures that the role of all the expenses is maintained within the budget to control the overheads. Change management as a tool is very critical in this phase as it dictates the ability of the project to be adjusted to reflect the immediate requirements of the clients (Putkiranta 2012, p. 343).

Attiany (2014) argues that a project closure forms a major facet as it dictates the efficacy of its application. Whereas many project managers appear to be reluctant by putting less emphasis on the last phase of a project, researchers point out that it is only through effective completion of all the stages that an organization can maintain the necessary budgets, allocate the correct time and predict the demands for the next project with precision.

Procedure closure report assists a project manager to identify the correct criteria for ending the project and plans the necessary handover of periodic reports for documentation (Putkiranta 2012, p. 343). This acts as a major point for linking the project’s outcome with the achieved results.

Besides, it closes the contracts with the suppliers and established agreements to pave way for further assessment. Finally, the post implementation review is used to measure the benefits assimilated from the project in comparison with set goals. Of greater essence this tool assist to generate lessons learnt to enhance future improvements.

Risk management plan

The article “ Scenario planning: navigating through today’s uncertain world ” by Axson (2011, p. 10) indicates that a project management plan should contain adequate and effective information that can facilitate reduction of risks and anchor achievement of its main objective. To begin with, risk identification information would facilitate easier categorization and ranking.

Besides, quantification of this information would help in further understanding of the impacts extent, severity, probability and response categories. The risk response on the other hand would contain information on possibilities of avoiding the risk, mitigating it or possible means of minimization to make the whole objective realizable. Finally the risk management plan should have an effective control strategy where monitoring and constant reviews are strictly adhered to at all stages of the project execution.

To effectively manage all risks for a project, the following tools and techniques should be employed effectively employed. To begin with, all parties and staff involved should be subjected to training on the different risks, their mitigation and the need for addressing them as key problems.

Training would be very critical in that it would facilitate clearer understanding of risks to all the involved stakeholders. In addition, monitoring would be very critical as the project progresses to facilitate evaluation of whether set targets are being met by the project implementers (Mahaney & Lederer 2011, p. 107).

In addition to that, instantaneous analysis of possible considerations for improvement should also be effected. As an extension of monitoring process, further instantaneous assessment would be critical in assessing possible emergent risks during the project. Finally, a risk management department or unit would help in coordinating the assessment of different risks in the project.

Risk monitoring and control process a housing project would be expected to provide an effective plan on mechanisms of addressing different risks. This according to Janicijevic (2010, p. 103) will be very critical as it would serve as the main guideline for the whole project.

Besides, it will create a platform for key assessments and possible reduction strategies for risks identified for the project. Besides, the process will be expected to meet the set standards of risks reduction and therefore making the key objective of meeting the opening deadline and possible.

Besides, the process will further be expected to operate within the established budgetary allocation in minimizing or addressing all the risks in the project. Finally, this process will be expected to effectively monitor, update, and inform all the stakeholders on the progress during execution.

Managing risks, planning and communication

To effectively meet objectives of a project, Johnson (2002, p. 8) indicates that a risk management plan must be developed. This should include a clear description of the project. Besides, it should include an effective risk identification strategy that covers all areas of project implementation.

Project management analysts argue that an effective project management risk plan should constitute a holistic analysis that would establish its occurrence probability (Scott & Krempley 2012, p. 19). In addition to that, mitigation or a reduction strategy should be incorporated with a final outline for monitoring and control. This according to Gomes and Yasin (2011, p.550) would help mitigate the risks by early identification, effective technological application, and follow-up to facilitate articulation of the established strategies.

Key stakeholders’ contribution to risk management decisions making is very critical to facilitate holistic acceptance of the management alternative decisions assimilated (Cohen 2002, p. 54; Valentine, 2012, p. 47). Therefore, contributions of the stakeholders in management decision making where the risks and their implications would be revealed for deliberations decisions to be reached at is important.

This method as (Waters 2007, p. 1123) points out is considered to be significant in that various contributions would be agreed upon through effective analysis of alternatives aimed at achieving the objective of the project. In addition to that, the media would also be used to relay key results to the public as stakeholders and opinions collected on their viewpoints.

Risk schedule analysis

Risk based schedule according to Hopkins (2009, p. 29) seeks to facilitate effective achievement of already established objectives in risk management. Factors related to time provided for by the project would be a very critical factor in establishing a realistic time frame. By considering the available time, Shayne (2010, p. 94) adds that risk management would be seen as a factor of the project as opposed to an external entity.

Besides, the schedule should also factor the consideration of the available resources for the project. At this point, Markle (2011, p. 290) observer that cost-effectiveness of all the established risk reduction and prevention consideration should be intrinsically considered.

In addition to that, the risk prevention executing personnel and their qualifications should also be considered because they would be the key implementing officers in the project. Finally, existing legislations related to the project for a host country should also be factored to reduce any possible conflict with the established mechanisms to mitigate their effects (Bielski 2005, p. 54).

Given the key description and risks identified in housing project, sensitivity analysis would consider the following key factors. To begin with, the destined time for completion and the opening of the project for use according to the pre-established objectives. This would be very sensitive in that completion within the established time would mean no extra budgetary costs while creating the expected economic opportunities (Scott & Krempley 2012, p.18).

In addition to that, the technology to be employed during the project would further be very crucial establishing the possible time to be taken and all the mechanisms for reducing the risks. Furthermore, the weather during the period of project execution would further be every important in developing the core strategies for onsite operations on.

Notably, with the project region of execution being subject to varied weather conditions, this consideration would facilitate the best selection of machines and equipment that suit the weather. In addition to that, the environment would be a key sensitivity factor to avoid obstructing animals’, human or vehicle movements during and after construction.

Conclusions

The ability to effectively prepare, prevent and manage key risks forms one of the most important concepts in promoting higher levels of productivity. Risks management must be articulated with great care and precision if pre-established objectives are to be achieved. A project manager’s role therefore includes developing a risk management plan. This must be articulated from a holistic point of view with effective involvement and communication with stakeholders at all levels.

This creates the needed cooperation and support.. At all stages, monitoring and evaluation must be executed to facilitate improvement of risk mitigation and identifying possible new ones. In the risk management plan, an executing teams’ mandate should be to ensure that all the involved people are trained on risks mitigation and identification.

This will in turn ensure effective identification of possible risks for the project. In addition, execution of the project will be effected instantaneously while analyzing the effects from the previous risks. This has been emphasized as a strategy to create a threshold for improvements.

Ahenkora, K & Peasah O 2011, “Crafting strategy that measures up”, International Journal of Business and Management , vol. 6, no. 10, pp. 278-283.

Attiany, M.S. 2014, “Competitive Advantage Through Benchmarking: Field Study of Industrial Companies Listed in Amman Stock Exchange”, Journal of Business Studies Quarterly, vol. 5, no. 4, pp. 41-51.

Axson, D 2011, “Scenario planning: navigating through today’s uncertain world”, Journal of Accountancy, vol. 211, no.3, pp. 22-27, 10.

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Bibliography

IvyPanda . "Project Risk Management." June 3, 2019. https://ivypanda.com/essays/project-risk-management/.