Strategies to Minimize Organizational Risks - Essay Example

Student: Lecturer: Course: Date: Manage Risk Risk Management Process Risk management is referred to as an interactive process, containing stages that allow continuous enhancement in decision making, when carried out in sequence. The term risk management is employed to a systematic and logical technique of identifying, establishing context, treating, analysing, communicating, and monitoring risks related with any process, function, or activity in a manner that will permit organizations to maximize opportunities and minimize losses. The risk management process focuses on minimizing the consequences or likelihood of a certain risk, to a level in which an organization can accept. Risk management process involves a number of stages that include hazard identification, identification of the related risk, and risk assessment which includes assessing risk possibility, consequence, and assigning rectification priority. This is followed by risk control, the risk process documentation, and finally, review and monitoring of the risk process. Risk control stage involves various activities that include risk elimination, risk substitution, risk isolation, administrative controls, engineering controls, and finally, the employment of individual protective equipment (Act Government 6). Importance of Managing Risk from the Same Organization Point of View The success of organization risk management process highly depend on how well all the involved stakeholders were involved in the process. Risk management plan should involve a common goal, which guides all the involved parties in their risk management activities. This enhances the reinforcement of the process other than creating conflicts and diversion in the process. In this regard, it is very important for all the involved parties to share a common perspective in risk management, so as to eliminate diversions that would create loopholes that can increase the chances of the identified risks or introduce new risks. Shared perspectives enhance effective employment of the risk management plan where all members support the set policies and follow the set procedure to attain the set objectives. They assist in identifying more risks and identifying other possible risk control strategies and thus, they can be said to play an essential role in enhancing the success of the risk management process (Praxiom 1). Defining Scope in Risk Management Effective risk management process involves the definition of the basic restrictions in which risks have to be controlled. This is done by establishing the risk management framework. As a result, the entire scope of the risk management process is defined or set. Scope definition involves the definition of the primary assumptions for the internal and external environment of an organization, and the general risk management activities and process objectives. To define the risk management scope of an organization, one need to understand the organization background and risk, assess the currently employed risk management activities, and develop risk management controls and initiatives structure. The next step should involve understanding the external environment that the organization works in and define the risks association with the environment. One should then understand the internal environment of an organization. This will assist in the definition of the risk management scope for that organization (Enisa 1). Risk as a Known factor in every Business Organization Risk is referred to as the uncertainty effect on objective. Effect in this case is regarded as a negative or positive deviation from what is anticipated. This definition acknowledges that we all operate in the world of uncertainty. Anytime we attempt to attain an objective, there is normally the possibility that things may not go as per the plan. Each step contains a risk element which requires to be controlled and each result is uncertain. Thus, we can sometime obtain negative results, while in other cases, we obtain positive results. This makes risks a known factor in every business organization in the world. The uncertainty is involved in every business organization, although the level of uncertainty varies. This makes every business operation risky to a certain level. The success of any business highly depends on how well a business manages its foreseen risks (Praxiom 1). Strategies to Minimize organizational Risk and Risk Management Techniques to Implement the Strategies The main strategies that an organization can employ to minimize risks include risk avoidance, risk reduction, and risk transfer. This can be enhanced by transferring various organization risks to insurance companies. This is attained by insuring over main risks that include facilities damage, suppliers or customers injuries, and product liability. Other strategies include conducting risk analysis to establish possible risks, and their consequences after which risk priorities are defined. In this case the organization should consider foregoing the most risky activities and those activities with minimal benefits. Risks should be reduced by employing quality assurance systems in case of product risks, depending less on loans for financial risks, keeping clear and accurate financial accounting data also for financial records, and by managing receivable accounts to a minimum balance. All these strategies will enhance minimization of the organization risks, based on the organization’s major activities (Markgraf 1). Risk Management Policy Risk management policy refers to a general intention, direction, or commitment to risk management. This statement articulates the commitment of an organization to risk management. It also clarifies its overall intention or direction. It forms part of the organization’s internal governance and control arrangements. To establish a reliable risk management policy of an organization, the policy should include a number of factors. These factors include the key principals that the organization should employ in risk management. This includes defining individuals responsible for the risk management process in the organization, the approach to be used in risk management, and the overall organization goal to risk management. It should also define the risk management stakeholders and the role of each stakeholder in risk management. The policy should also explain the underlying organization’s risk management approach, where it provides the main features of the risk management process, and determines the most effective reporting procedure. It also gives the description of the process employed by the organization’s council to assess the effectiveness of the internal control process of the organization (Praxiom 1). Key Areas to Identify and Manage to enhance Successful Risk Management Processes and Policies There are various key areas that may need to be employed to enhance successful risk management processes and policies. These areas include risk identification where all possible risks an organization can face are identified. The second area is risk analysis where each risk is evaluated to establish its possible consequences and probability of happening, to assist in defining the risk priority. The other area to be included is the risk mitigation or possible measures that can be employed in risk control. This will help in identifying risks that can be control, and the risks that are hard to control. The other aspect to consider is the availability of the right resources required to control risk. This includes the right skills required to handle risks identified from different departments in an organization, and possible framework that can be employed to handle the identified risks (Berg 89). Importance of Risk Management Plans communication Clarity among Stakeholders Risk management plan defines how an organization anticipates managing its risk. It defines the components, resources, and the approach to be employed to control risk. Characteristically, management component comprises of activities, procedures, responsibilities, and practices. Communication on the other hand refers to an iterative and frequent dialogue between stakeholders and the organization. It is a two-way process which entails both receiving and sharing information regarding risk management. The two are important because, risk management plan gives a clear framework of how the organization handles its risks. This easy the stakeholders understanding of risk management process to be employed by the organization. Clear communication on the other hand enhances stakeholders’ contribution to the risk management process, and obtaining feedback to their questions regarding the risk management process. Clear communication enhances effective implementation of the risk management plan (Praxiom 1). Importance of Support from all Risk Management Process Key Stakeholders Stakeholders refers to organizations or individuals that can be impacted or affect an activity or a decision. They also include individuals who have a view that an activity or a decision can impact them. The involvement of key stakeholders in risk management process is very important since the risk management team get an opportunity to gather wider views regarding possible risks and measures that can be employed to control these risks. Different stakeholders have different experiences on different aspect of business operations in an organization. In this regard, they can easily point out risks that are more alarming, which could not have been foreseen by other individuals in the risk management team. They may also have the ability to propose more reliable risk management strategies that could be more effective in the risk control. Thus, their support can highly enhance the risk management process (Praxiom 1). Risk Management Framework Risk management framework refers to a set of constituents, which sustain and support risk management process in an organization. It contains two forms of components that include organizational arrangements and foundations. Foundations comprise of the risk management commitment, policy, mandate, and objectives. Organizational arrangements on the other hand contain the activities, plans, processes, relationships, resources, and accountabilities one can employ to manage the risks of an organization. Different organizations experiences different risks and also with different magnitude. In this regard, there is no single risk management framework defined to be employed in every organization. Each organization develops its own risk management framework based on its own risk management policies, identified risks, and the involved stakeholders. However, an effectual risk management framework has to be determined from the top. It should be based on the organization risk management strategies and risk appetite (Ranong and Phuenngam 8). Works Cited Act Government. Worksafe Act 6 Steps to Risk Management. ACT Government (WorkSafe ACT) 2012. Print Berg, Heinz-Peter. Risk Management: Procedures, Methods and Experiences. RT&A 1.2, (2010): 79-95 Enisa. Scope and Framework. 2016. Web. 12 April. 2016. < https://www.enisa.europa.eu/activities/risk-management/current-risk/risk-management-inventory/rm-process/crm-strategy/scope-framework> Markgraf, Bert. 8 Steps Every Entrepreneur can Take to Reduce Business Risk and Liability. 2016. Web. 12 April 2016. < http://smallbusiness.chron.com/8-steps-entrepreneur-can-reduce-business-risk-liability-52978.html> Praxiom. Plan English ISO 3100 2009 Risk Management Dictionary. 2014. Web 12. April 2016. < http://www.praxiom.com/iso-31000-terms.htm> Ranong, Prapawadee and Phuenngam, Wariya. Critical Success Factors for Effective Risk Management Procedures in Financial Industries. A study from the Perspectives of the Financial Institutions in Thailand. 2009. Web. 12 April 2016. < http://www.diva-portal.org/smash/get/diva2:233985/fulltext01> Read More