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 whether it is
worth avoiding such risks or utilising more proportional effort in containment.
The various types of risk may include:
- Reputational: Reputational risks arise when an
organisation acts contrary to what is expected of it, maybe immorally and
discourteously. 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, among other technological
issues, form part of the technology risk. These issues can lead to
financial resources, time, and data loss, which is connected to 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, and 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 whether
the market is ready for the organisation's products or services to sell at
a price that makes it self-funding.
- Competition: Competition is a significant
issue that organisations should be wary of before making plans. 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. To maximise the efficient and effective use of financial resources,
meeting customer demands in providing products and services must be done
at a price the customer is willing to pay.
- Strategic: Business strategies can lead to an
organisation's growth or decline. Every procedure involves some risk, as
time and resources are involved in implementing it, increasing the risk
that an implemented strategy results in losses.
- Operational: Operational risks arise when an
organisation's day-to-day operations fail to perform and achieve its
customers’ goals. When processes fail or are insufficient, organisations
lose customers, revenue, and reputation.
- 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 risk will occur.
- Prioritisation: Not all risks have the same level
of severity. Therefore, it is 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.
They must also 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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