Business: Enterprise Risk Management

Managing the risk is a major aspect of the business. When a company is able to manage the risk when it arises then the business can be sustained. If unforeseen risks are not managed then it will lead to the decay of the entire business and eventually the company will fall. Every company must follow enterprise risk management which is a process of planning, organizing and controlling all the activities of the organization. When all the steps are carefully inspected, then risk can be predicted in advance and necessary actions may be taken to minimize the adverse effect.

Enterprise risk management is associated with any type of risk that may arise due to financial, strategic or operational failures. Many ERM packages have been developed for use by organizations. The risk management ability of the business is now considered as a main criterion for scrutinizing the company. The ERM process that is followed by the company is often analyzed by a board of directors and changes are made as and when required.

For any business, this risk management process is crucial as it determines the stability of the organization. The risk management process helps the company to identify the risk, analyze the cause and take counter actions to minimize the losses incurred. The ability to predict the risk determines the success of the process. This requires careful watching of all the departments in the company.

The enterprise risk management process must be customized for each business depending on the service that is provided by the business. All the heads of the departments must be made to participate in planning the risk management process. The risk management strategy must be implemented in the organization to minimize the risks. In the initial stages of the risk management process, the influence of risks on the stability of business will be high. When the process is perfectly planned and executed, the risks will have lesser influence on the organization.

Understanding the risks

The cause and the effect of the risk must first be identified. The historical performance has to be analyzed and it is essential to find out what has lead to the risk. Based on this info the current strategy of the company must be studied and the future risks must also be identified.

Identifying risk

Future returns of the company depend on identifying the risk in the management. This is crucial step in the enterprise risk management process. Employees from various departments must be involved while identifying the potential risks. Department wise risk factors must be identified so that the process is more customized. Generally organizations conduct meetings and interviews to identify risks. Is the company is big and the number of risks is more, it is better to seek the help from third party organization to plan the risk management.

Analyzing risk

Even though a company follows risk management process, it never attains the state of risk free business. There are always chances for any type of risk and when the company faces the risk, it has to be analyzed carefully to decide on the action that is to be taken to maintain stability.

The company must plan the risk management process in such a way that maximum advantage is taken from any risk. The entire process of the organization must be monitored carefully and at regular intervals to predict the type of risks. The frequent risks that are faced by the organization must be documented along with the steps taken. It is suggested to educate the employees about the risk factors and the controlling measures. The business process must be protected so that the entire process is not collapsed by any type of risk. When the organization faces a risk, it must be communicated to the share holders so that they will have faith in the business.

By Jayashree Pakhare