Duane Gafoor

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Managing Risks

Managing Risks


Risk management involves identifying and determining unforeseen events that could be detrimental to a business or a project's progress. Once these risks have been identified, strategies are formulated to mitigate them in case of their occurrence.


The risk management process involves:


  • Identifying the most likely risks.

  • Assessing their likelihood of occurrence.

  • Establishing effective strategies to mitigate them.

  • Monitoring the effectiveness of risk management strategies.

Classifying risks allows executives to formulate models and alternative approaches that help mitigate them. The following are categories of risks and their effective strategies.


Preventable Risks


These risks are internal, arising within a business or organization, controllable, and may be eliminated. Such risks include unethical employees, rogue managers, unauthorized personnel, and inappropriate actions. These risks pose a danger to the welfare of the company and may damage it in the long-run. Experts advise companies to eliminate these risks since they have no strategic benefits.


These risks are best mitigated through an active prevention approach by the company. Thus, an organization must design a desired rule-based compliance approach that will help reduce such occurrences. This helps in monitoring operational processes while guiding the staffs' behavior to an expected norm.


Strategy Risks


With this type of risk, an organization has an appetite for risk to yield higher returns from the proceeds of the risk. For instance, banks are ready to encounter credit risk to generate high returns in the form of interests. Organizations opting for such risks optimize their strategies to benefit from the undertaken risks.


Managing strategy risks is the key driver and determiner of the benefits yielded. Unlike preventable risks, strategy risks are inherently desired by the organization. To benefit from such risks, organizations need to design a risk management model that reduces the probability that the assumed risk materializes. Companies opt for approaches that improve their ability to control the risk, should the event occur.


External Risks


These types of risks are external to an organization and are beyond their control. Examples include a shift in macroeconomic policies, natural disasters, and the political climate. Thus, external risks require a different model and approach to mitigate. Risk managers should focus on the identification of such risks and their necessary mitigation.


Organizations need to customize their risk approach models for every risk category. Using one approach may prove inadequate for another type of risk.




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