Cyber Security

What is Risk Management?

April 25, 2016

Bita Beigishah

Risk management is the continual process of identifying, analyzing, evaluating and either mitigating or eliminating any threat that could potentially obstruct business goals.

Types of Risk in Business

Risk can materialize in a number of different areas both internal and external to your business and each type needs to be evaluated and handled accordingly.

Strategic Risk

This refers to all industry-specific risk. For example, if you work primarily with the federal government, government shutdown would be a type of strategic risk that you would need to prepare for. Other examples of strategic risk include:

  • Changes in supply and demand
  • Mergers, acquisitions, etc.
  • Investor relations
  • Introduction of new industry technologies

Compliance Risk

This refers to an organization’s need to comply to government rules and regulations. Compliance risk is associated with failing to meet guidelines or laws such as those determined by:

  • OSHA
  • EPA

Financial Risk

These risks are directly tied to how your business handles finances. This can also refer to the financial state of those clients you do business with and how you handle the potential of a client not being able to pay for services consumed. This can also refer to the business effects of:

  • Foreign transaction fees
  • Debt load
  • Interest rates

Operational Risk

This refers to the operational aspect of your business and your ability to respond effectively to failures in areas such as:

  • Systems
  • Internal processes
  • Delivery
  • Transportation

This also refers to your employees and the risk that could be caused by either their presence or an unexpected exit.

Other Risks

This refers most often to the risk potential of a natural disaster occurring but it can also encompass other risk not easily categorized under the other options, such as reputational risk and the cost of negative PR to your organization.

Who Should be Involved in Your Risk Management Process?

As you can tell by the types of risk that can affect a business, effective risk management spans across the organization and into every department. That being said, each department from R&D to Marketing and Sales needs to have a hand in creating and implementing the risk management plan your organization develops. Nobody will understand or know the ways to combat financial risk as well as your CFO and similarly your COO will be best to evaluate your operational and compliance risk landscape, so you can’t exclude them or any other department head if you truly want to develop a thorough risk management plan.

What are the Risk Management Process Steps?

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