RISK MANAGEMENT

 

WHAT IS RISK MANAGEMENT?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution. “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution, strategic risk has three main causes:

Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.

Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.

Pressures due to information management: Since information is key to effective leadership, gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.