One of them is managing the risks properly. Fundamentally, the risk management includes three steps. These are as follows.
- Recognize the risks
- Analyze the risks
- Curb the risks
These three processes require several types of tools and techniques to fight with the enterprise risks. The perfect example is many companies purchase insurance so that they can face the risks courageously. Before proceeding, it is essential to know more about the enterprise risk management accurately. It will give a clear idea of how to deal with these risks better.
What Is Enterprise Risk Management?
Therefore, an enterprise risk management or ERM is defined as a business strategy of the firm which includes a plan to figure out the risks and prepare the organization to guard it against the possible dangers that can hinder the goals and objectives of the company. Let us have a look at the type of enterprise risks.
Types Of Enterprise Risk
There are four types of risks that the companies pay attention to for their growth and productivity. They are as follows.
Finance risk- It is the most common type of risk. It involves the non-payment of the debts. It also includes the increase in the interest rates on the borrowings made in the business.
Operational risk- It includes risks that occur due to theft or if a machine stops functioning. It affects the working of the company.
Compliance risk- It includes all those laws, rules and regulations that the company must adhere to for the legal operation. For instance, the hospital has to follow the HIPAA or Health insurance Portability and Accountability Act. It helps the organization to serve the patient better while protecting their privacy.
Strategic risk- It includes the risks in the strategies of the company. For instance, if a company launches a product or service but customers do not like it. This situation results in the failure of that product.
The Process Of Risk Management
To handle the risks, the businesses have four options. These are as follows.
Avoid risks- As the names itself suggests, the businesses make the necessary plans and strategies to prevent the loss. They make sure to impart safety training to the employees. For example, a company must not introduce a product in the market which is harmful to the environment.
Assume risks- Accepting the fact that the loss will surely happen comes under assuming risks. Here, the firm makes sure to prepare it for the consequences.
Reduce risks- The professionals of the company make themselves ready with the preventive measure of dealing with the loss which is going to occur. For instance, installing the fire sprinklers to protect the employees and building from fire hazards.
Transfer risks- Here, the loss is transferred to the other party in a legal manner. For instance, the company pays the premium to the insurance company. In case of theft or damage to the building etc., insurance provides help.
Since transferring the risks involve money, this option comes into picture only when every other alternative fails. Also, many companies, set up a fund to cover the company when the risk occurs.
It gets difficult for many companies to follow these procedures to tackle the risks and save their companies from the losses. Therefore, they seek help from the advisory firms where the trusted advisors provide the budget-friendly and quality risk advisory services. They are active and flexible in offering the solutions whenever the bad situations occur.
With the risk management, the companies try to incorporate the concept of handling the risk in their work culture. This can surely help the company to grow in accordance with the changing scenario of the business world. But, managing the risk is not just the responsibility of the higher officials. It is necessary to encourage the employees to work towards identifying and managing the risk in an efficient manner. Whether the company is big or small, tackling the small and big problems together not only saves the company from the losses but also help in increasing the productivity of the entire entity.