What is risk management?

Risk management is a systematic strategic planning process within companies that aims to  identify, analyze and respond  to the risks to which it is subject.

Its objective is to minimize or even eliminate the possibility that these risks have a negative impact on the corporation and its projects.

Enterprise risk management (enterprise risk management) adopts measures and policies that seek to achieve a balance between risk prevention and the costs to avoid them. It depends on decision-making by those responsible, which is more effective when it is based on a good control system.

What are the risks in companies?

Risks are future events, conditions or circumstances that may have an impact, generally negative, on a project or company, such as loss or damage.

The concept of risk takes into account both the  probability  and the  frequency  with which it can occur and the  seriousness  of its consequences.

The types of risks to which a company is vulnerable depend on its activity. We can cite as examples:

  • Loss of stock or suppliers.
  • Loss of income
  • Rising costs
  • Loss of important employees.
  • Employee or third party fraud.
  • Bad account management
  • Logistical difficulties in distribution.
  • Lack of credit supply
  • Fines and court proceedings
  • Loss of brand reputation.
  • Work accidents
  • Environmental accidents

What are financial risks?

All companies are subject to financial risks, which are those that can affect the status of their accounts. These risks can occur due to internal and external factors.

In the case of external factors, we can cite economic crises, instability in exchange rates and changes in the market in which the company operates or in government policies as examples.

Internal factors are derived from the company’s own performance. Poor cash management or production and logistics problems are examples of risks that can have a direct impact on accounts and consequently their market value.

Controlling this type of negative event is one of the objectives of the project’s risk management processes.

How is project risk management carried out?

There are several methodologies that aim to manage the risks of a project. However, it is possible to identify some commonalities between them. A risk management policy normally takes the following steps:

Risk identification

It seeks to create a list of all the risks that can affect the success of a project or the performance of an activity. It is the stage in which you seek to identify possible sources of risk.

Mapping is a crucial step in the risk management process and should map in detail all the important processes for the good performance of the company, such as the supply chain, financial sector, human resources, facilities and processes of commercialization. and sale or provision of services, which are the basis for generating income.

Risk analysis

At this stage, the probability that each risk actually occurs and its degree of impact would be evaluated. This information is necessary to create risk classification parameters.

Risk prioritization

The objective of this phase is to create a classification, classifying the risks according to the analysis carried out in the previous step. The risks that are most likely to occur and the most serious impacts should take priority in prevention.

Risk response planning

It defines the actions to be taken to eliminate the probability of a risk occurring or to minimize its impact, defining, for this, the procedures and techniques to be adopted for each case.

Risk monitoring and control.

It monitors the activities of the companies and the progress of the projects to apply the measures that were designed to avoid the risks already analyzed and identify new threats, taking corrective measures when necessary.