Should you try to manage your risks?
Posted on 1st May 2018 at 20:00
Risk is now considered a strategic issue for most organisations, looking both external to their business as well as considering risk management for every function. Managing risks should be something that is embraced by top management and immersed in the culture of the organisation. For most people, risk management is something that is done naturally – it is the art of using lessons learnt from the past to minimise misfortunes and maximise opportunities in the future.
But what is the right level of risk and at what point have you got to accept that risk is just inherent in what you do? Most organisations tend to introduce risk management as a direct result of something going wrong – failure in the supply chain, failure in quality which has been released to the market place, a reportable accident that has occurred causing harm to an employee or member of the public.
Many risk factors have developed from a pressure to enhance productivity, eliminate waste, remove supply chain duplication and drive cost improvements. In Procurement, we have in fact created some of the risks. But do we complete the due diligence of assessing these created risks – any corporation that doesn’t recognise its risks is fated to die because of them.
But what is risk management and how can it be introduced into daily life, creating a proactive review of risks rather than just reacting to specific issues that have gone wrong?
Risk Management is a systematic review of not only the possible external risks – for example supply chain failures, contract failures, reputational impact as well as internal risks – for example cultural values and norms, group dynamics or IT security risks a risk register can be created. Each risk listed can then be assessed using a basic scoring principle, looking at likelihood of the risk occurring and the impact of the occurrence on the organisation. Each risk can be allocated to an individual and a strategy developed to manage it, ensuring that the right people have the right information at the right time.
There are a number of benefits to creating an ongoing risk management process. It can ensure the smooth running of operations, avoiding disruptions to production caused by disruptions in your supply chain. It can also empower their workforce, making them more innovative and improving their problem-solving skills by creating the right risk management culture. Employees are often the “Eyes on the Ball” people who can see a risk before it impacts the business, for example Account Receivable employees might be the ones to see a possible customer going into receivership when there are months’ worth of unpaid invoices.
It should be noted however, that it is impossible to eliminate all risks. Some individual risks may be interconnected with the mitigation of one directly increasing the possibility of another occurring. But by understanding what the risks are and which will have a greater impact on the business, steps can be taken to limit it’s impact.
And that’s what risk management is all about – it’s lessening the impact of identified risks in order to ensure a business remains profitable and continues in operation.
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