risk management process

All businesses face similar risks in their daily routine. Understanding what risks we are going through is not as simple as it seems to be. But it is sure, no matter what business we are involved in, that we have to deal with risks of different nature, that will hit our interests in various ways and will affect the health of our business.

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The way it will happen is strictly linked to two points, that are pivotal: the first concerns the planning of the appropriate countermeasures, the second concerns the actions. This two big areas include multiple activities, that all start from the very understanding of the meaning of risk.

Considering the risk and therefore the possibility that an undesired event might take place is, first of all, an assumption of responsibility. It is so because it involves the structure of the business as a whole. It involves not only the money but the people behind them, involves the physical infrastructure (consider the example of a natural disaster), the IT infrastructures.

Risk can be defined as the probability that a damaging event has to happen. It is therefore a probability, which means that is based on two opposite considerations, that finally determine the likelihood of an event, given some variables: whether if an undesired and harmful event will happen or not. From here it comes natural that, before considering the probability of an event, and whether we are going to face it or not, or whether we will rather consider it or not, we have to accept it. This is the first step, a step we could call “the acceptance” of the risk. Gaining acceptance of risk will give us big advantages. This step is going to shape decision making policies in all the aspects of the organization, since it is related with the factor that is probably the most important among all those involved in the processes: the human factor. Gaining acceptance of risk means gain acceptance of the role of uncertainty. Especially in a globalized world, guided by the globalizations of the financial flows (volatility of the financial markets) and the globalization of the information, that amplifies and differentiates incomes and outcomes.

A comprehensive understanding of risk must take into consideration also the consequences of the event. This is even more important because it allows us to focus not only on data and scenarios that, at least at the beginning can seem to be unclear and dispersive, but allows us to stay focused on the importance of our business, showing what could be the consequences once one or more events will take place. We are not talking about a step, neither we are talking about an overnight and immediate success.

Then, what risk management is? It can be considered as a process, a sum of actions focused on a specific but not static path, whose goal is to foreseen accidents to whom oppose a predetermined action. What a good risk management policy is aimed to do is to protect the value at a firm. The value can be considered as the intrinsic and extrinsic merit of the assets, that will ultimately bring an increase of money, better reputation and so on. So we have tangible and intangible value (think about the value of the experience of the employees). And despite the intangible value is often underestimated because apparently not able to bring added value or profit, it is the very treasure of every corporation.

A good risk management policy is, after all, a process through which the elements involved are able to be exploited as best as possible and, by doing this, the involvement of the team is paramount (consider the importance of the Human Resources Manager or Consultant, once far from being at the center of the organization policy, now the core of the biggest and larger success firms). It gives, by the accuracy of the process and the assessment, the possibility to share knowledge, share participation.

Therefore, a good business policy is able to do two pivotal things: on one side it protects and improves the expertises of the single members of the team (and acts as a glue among them), and at the same time allows the business to wisely pinpoint critical factors, elements, verify them and solve the issues. This way it helps evolve the business and the people involved in it. Never take it for granted. This process will give a corporation the benefits of the establishment of a better networking policy between people, colleagues, teams and different corporation environments. The comprehensive use of the good tools in risk management practices will help create a better networking grid in the business, allowing all the floors communicating, acting, assessing and evaluating in a fluid and pragmatic manner.

The assets then can be included in three big categories. Human, organizational and structural asset. What can undermine the value of a business is usually called threat, but the possibility that a single or multiple set of threats are able to harm the interests of a business is increased by the existing links between all the assets and their vulnerabilities. We can imagine a vulnerability as an intrinsic feature of an asset. More, having every asset its own vulnerability (or vulnerabilities) and being connected in a grid with other assets, a harmful event could show up as a cascade process, as a multiplier of threats itself.

Risk has, in its definition (although we have to consider the little convergence of the numerous definitions of the term) a downside and an upside, that are known as crisis and opportunity. Without a correct risk management process we won’t be able to exploit the opportunity. But being concerned about risk doesn’t have to mean that a manager has to avoid it tu cur: the process of managing and assessing risks has one important goal, at the very end. The core of the processes to minimize damages and avoid useless risks, focusing instead on those that are worth it. It’s true that every risk that aims to a better life, more knowledge or more money it’s theoretically worth it. Minimizing risks and minimizing losses, means take those risks that really worth efforts. So, a business that decides not to be exposed to risks, is unlikely to generate new incomes. A business that is exposed to the wrong risks is likely to suffer big losses. What risk management is supposed to do is just a “check and balance” between risk and reward.

Risk management has to be addressed with a wider view. Theories have usually provided different ways to look at it, often too narrow, though every sector has its own policy and methodology. The narrower is the risk a company decides to consider, the more it will be prepared to face it. It is, simply, a more complete and competitive view of risks that enabled, at the very end, their victory and success.
Francesco Danzi

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