Risk management refers to the degree of risks, also considering the company’s strategy about risks. The company’s risk management system helps the administration to determine a policy corresponding to the risk appetite of the organization. A link is then established between growth, risk, and all results and allows an entity to identify and assess the risk and determine acceptable levels consistent with the objectives set by the company.
This presupposes that risk management not only goes through a phase of identification but also of risk assessment. The risks can be classified into several categories. Businesses should be able to distinguish the strategic from operational risks, and the informational from regulatory risks.
If the risks are identified, they should be qualified according to two criteria: the probability of occurrence and the impact in case of an incident. The effect can be assessed according to several parameters: financial implications and human impact on the image of the company. Generally, a citation is often used on a scale of low to medium to high.
The combination of these criteria, including the probability of occurrence and the impact, allows the risk to be assigned a global rating. So, risk management will enable companies to gain better knowledge and distinguish between them several risk categories.
After identification and risk assessment, management can then adopt a proper approach among the following five risk management strategies: avoidance, prevention, reduction of impact, sharing, and acceptance of risk. The choice of a plan requires to quantify the cost to benefit ratio of each of the possible strategies. Thus, a company whose objective is to develop internationally, will not be able to implement an exchange risk avoidance strategy.
Also, risk management, thanks to the quality of the information it produces, better directs capital requirements and their better allocation. This is where Cane Bay Partners can help your business.
Hiring the right person
Many experts advocate the creation of a Risk Manager, or Chief Risk Officer, who would act as a leader and catalyst for the company’s risk management program. He or she appears as a leader, an evangelist, a steward, and a consultant in the process of setting up the organization’s risk management. They must report the information directly to senior management and the management committee.