Management risks can threaten an
organisation's ability to achieve its financial or operational goals.
Commercial risk is centred on an organisation's trading plans that may not turn
out as originally planned or meet its target. It refers to the possibility of
an organisation needing to be more efficient in using its financial resources
due to the uncertainties brought about by its failure to manage risk.
It is important to note that the severity of risk may not be proportional to the damage it may cause and that some risks are unavoidable. No matter how much time and effort is spent on risk avoidance measures, focusing on the actions required to mitigate and contain risks to reduce the damage is crucial. It should be considered if it is worth avoiding such risks or utilising more effort in containment proportionally. The various types of risk may include:
- Reputational: Reputational risks arise when an organisation acts contrary to what is expected of them, maybe immoral and discourteous. With the advent of social networks, reputational risks have become one of the critical areas of concern for organisations. An unhappy customer can lead to disproportional risks for an organisation's reputation.
- Technology: Security attacks, power outages, and discontinued hardware and software, amongst other technological issues, form part of the technology risk. These issues can lead to financial resources, time and data loss, which has many connections with the previously mentioned risk.
- Compliance: Compliance risks are those losses and penalties an organisation suffers for not complying with its relevant rules and regulations. These could include the UK’s Procurement legislation, ISO, CE, Governance or industry sector codes of practice or guidance.
- Economic: Failure to acquire adequate funding can damage an organisation's success. Before an organisation can meet and achieve its goals, it must be kept afloat financially as costs pile up and suppliers and employees are paid.
- Market: Misjudging demand is one of the primary reasons an organisation fails. An analysis will determine if the market is ready for the organisation's products or services to sell at the price that makes the organisation self-funding.
- Competition: Competition is a significant issue that organisations should be wary of before plans are considered. Venturing into an oversaturated market may not be worth the effort.
- Execution: Organisations can only succeed by considering the needs of their markets, before implementing their business plans. Meeting customer demands in providing products and services must be done at a price the customer is willing to pay, to maximise the efficient and effective use of financial resources.
- Strategic: Business strategies can lead to the growth or decline of an organisation. Every procedure involves some risk, as time and resources are involved in putting them into practice, increasing the risk that an implemented strategy results in losses.
- Operational: Operational risks arise when the day-to-day running of an organisation fails to perform and achieve its customers’ goals. Organisations lose customers, revenue and reputation when processes fail or are insufficient.
- Quality: Where a business develops products or services that fail to meet customers' needs and quality expectations, the chance that these customers will ever buy again is low. In this way, an organisation could reduce and possibly lose future revenue streams.
The risk management process can make an unmanageable risk manageable. It can allow an organisation to operate on what seems to be a disadvantage and turn it into an advantage. A typical risk management plan might involve the following:
- Identification: It is impossible to resolve risks if an organisation fails to identify them.
- Analysis: to determine the likelihood that each of these risks will occur.
- Prioritisation: not all risks have the same level of severity. It is, therefore, imperative to assess each risk to ascertain its severity.
- Assignment: Identifying and assessing risks is only helpful if an organisation assigns someone to oversee and manage the risk.
- Monitoring: strategies to respond to the various risks should be monitored to judge their effectiveness.
The person responsible for managing each
risk has a duty of care towards the organisation to monitor the progress of the
risk threat towards its mitigation. However, an organisation's senior
management team must ensure that all business risks are managed and monitor their
overall progress towards mitigation to minimise or eradicate their impact, as
well as identify and monitor potential new risks as they arise.
It is better to ensure that dedicated
communication channels for risk management are organised so that essential
elements and information are recovered. No matter the risk or where it comes
from, an organisation must ascertain its risks and take the appropriate actions
to mitigate them through avoidance, prevention, containment or transfer.
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