Week 4: Case Study Group: FEP-KLTSA Business Challenge
Week 4
Good concept and tools for risk management; ways to manage risk as an entrepreneur in current digital world
Introduction of risk management and example of good concepts
The process of recognizing, evaluating, and mitigating risks to an organization's assets, profits, and operations is known as risk management. Competing in any industry involves some sorts of risks, these can be financial, legal, digital or any other issues companies face in today's world. The risks that moderating organizations face have grown more complex as globalization has increased. One of the most well-known instances is SpaceX, which was on the verge of bankruptcy but is now valued at over $100 billion as a result of their excellent risk management. The reason behind risk management is not avoiding risks, but it is to know which risk is with taking and what will get you closer to your goals. Executives in many businesses monitor their risk management initiatives and work to maintain them at the highest standards. The global business community was put to the test by the pandemic. Over 120,000 businesses across 60 countries revealed that 25% of businesses had a 72% decline in revenue during the first few months of the pandemic, with the remaining 50% experiencing a 50% decline in the same period (World Bank Group, 2021).
Importance of Risk Management
Risk management and risk analysis is a process that allows individual risk events and overall risk to be understood and managed proactively, optimizing success by minimizing threats and maximizing opportunities and outcomes (What Is Risk Management? | APM,n.d.). Risk can be perceived either positively (upside opportunities) or negatively (downside threats) (What Is Risk Management? | APM,n.d.). Risk management involves the identification, assessment and mitigation of potential risks.
Risk management is important to enhance an organization in decision making. This is because risk management can empower decision-makers by providing crucial insight into potential risks and their possible impact. By analyzing risks, businesses can make informed choices, minimizing unforeseen negative consequences and optimizing outcomes (HSE STUDY GUIDE, 2024).
Other than that, risk management can improve financial savings. Incidents incur both direct and indirect costs. For example, lost wages, medical treatment, damage to property, diminished employee morale and more. By mitigating hazards, these incidents can be decreased and help prevent accidents from occuring, saving organisations the hefty financial and administrative burden of incidents (Evotix, 2023).
Last but not least, ensure compliance with regulations. Complying to the appropriate regulations is now non-negotiable and a breach in compliance could lead to serious legal repercussions. The identification of hazards in health and safety risk management helps organizations stay aware of any potential risks. A risk management strategy will follow regulations closely and leave no stone unturned when it comes to making sure the organization is working legally and safely (Evotix, 2023).
Example of Tools for risk management/Benefits of Using Enterprise Risk Management Software
Picking the right tool can be difficult because there are so many different ERM software solutions on the market. This article will introduce and give insights on 2 examples of ERM software solutions.
1. RSA Archer
- A provider of governance, risk and compliance software solutions in managing various risk-related activities (Sheedy & Jepsen, 2018).
- Highly customizable and modularized but requires dedicated resources for implementation and management, especially suited for large organizations for resource allocation
- Different features included workflows, dashboards, and reports to fit specific requirements. Regularly update risk registers, conduct risk assessments, and monitor compliance effectively.
2. LogicManager
- Provides risk management, policy management, compliance, and incident management solutions.
- Well-suited for mid-sized companies that require a flexible ERM solution. Its strong customer support and training resources are beneficial especially for organizations without risk management expertise (Singh, 2024).
- Various features including user-friendly interface design, customizable dashboard for specific requirements, incidents tracking, managing policies, and performing risk assessments using risk libraries and using built-in templates.
In addition, there are numerous benefits to using risk management software. The advantages are:
- Greater Shareholder Value:
- Stock prices rise in response to effective risk mitigation, which also improves brand reputation.
- Increased Transparency:
- Projects may be managed by having a thorough grasp of the risk and reward situations.
- Optimized Risk/Return Outcomes:
- Prompt risk detection and mitigation to improve business performance.
- Prioritization:
- Close supervision and management are achievable by high risk mitigation procedures.
- Lower Compliance Costs:
- Lower the related costs by integrating regulatory and compliance operations.
Ways to manage/improve/mitigate risk as an entrepreneur in current digital world
Enhancing Enterprise Risk Management (ERM) involves a multifaceted approach encompassing strategic alignment, cultural promotion, technological integration, and ongoing review and adaptation. Firstly, aligning ERM with business objectives ensures that risk management activities are not conducted in isolation but are instead closely linked to the organization's strategic goals (CLDigital, 2023).
In addition, it is important for establishing a risk-aware culture throughout the company. To do this, a mindset that emphasizes the value of risk management and each employee's responsibility in it must be ingrained. In order to enable staff members to actively participate in risk identification and mitigation initiatives, regular training sessions and efficient communication channels can aid in spreading this knowledge throughout the company.
Enhancing ERM also requires leveraging technology. The risk management process can be automated in a number of ways with advanced ERM software, including risk detection, assessment, and mitigation (Hayes, 2024). The ERM strategy must be regularly reviewed and updated to guarantee its continuous applicability and efficacy. New threats are always coming, and current risks are always changing, creating a dynamic risk landscape. Organizations can better minimize emerging risks and seize new opportunities by staying up to date on these changes through regular reviews and the required adjustments to their risk management methodology.
As a result, one of the most important aspects of ERM is third-party risk management. Organizations run the danger of third parties when they depend on outside parties for a range of products, services, or collaborations. Mitigating the possible effects of third-party partnerships on the organization's operations, reputation, and compliance requirements is an essential aspect of effectively managing these risks.
Digital Risks in the Digital Age of Entrepreneurship (BR):
As society is transitioning from its industry age to a digital age, the type of risks faced in the current age is evolving accordingly in the industries. Such digital transformation is essential for organizations to navigate new risks and vulnerabilities.
There are several digital risks occur in current digital world(GmbH, n.d.):
Cybersecurity Risks: Where organizations will face cyber threats such as ransomware, malware, phishing and hacking. Which leads to sensitive data breach, economic interruption, and reputational harm to companies are all the possible outcomes of such risks.
Strategic Risks: As digital innovation is happening at such a high speed, organizations' models will eventually fall out. Businesses have to be constantly keeping up the pace of current digital trend, however this will increase the chance of investing inappropriate trends or technology. Blockbuster's demise as a result of its inability to see the danger posed by digital streaming services is a prominent example.
Compliance and Regulatory Risks: These refer to the risk of breaking industry rules and guidelines, which might result in fines, legal repercussions, and damage to one's image. Particularly important are compliance issues in sectors including banking, healthcare, and telecommunications.
Reputational Risks: In the current digital era, with the power of social media, a company's reputation can be varies drastically due to the negative reviews or scandals caused by attackers as it can go viral and cause damage to a brand's image. For instance, a food delivery app experiencing a glitch and mishandling orders could face immediate backlash online, impacting customer loyalty.
Operational Risks: In relation to the day-to-day functioning of technology systems and processes. Operational risks include system downtime, performance issues, and failures in backup and recovery systems.
Conclusion
Risk management is crucial for organizations to navigate today's dynamic and globalized environment, involving recognizing, evaluating, and mitigating risks to protect assets, profits, and operations. Effective risk management, as seen with SpaceX, identifies which risks are worth taking to achieve strategic goals. It enhances decision-making, optimizes outcomes, minimizes negative consequences, prevents costly incidents, and ensures regulatory compliance. Tools like RSA Archer and LogicManager exemplify Enterprise Risk Management (ERM) software benefits, offering solutions for risk assessment, compliance monitoring, and policy management, thus improving shareholder value. In the digital age, organizations face new risks such as cybersecurity threats, rapid digital innovation, compliance issues, reputational risks, and operational risks. Embracing technology in risk management automates and streamlines processes, enhancing efficiency. Regular reviews and updates ensure strategies remain relevant. A comprehensive strategy involves fostering a risk-aware culture, aligning ERM with business objectives, and managing third-party risks. By integrating these practices, organizations can navigate complexities, mitigate emerging risks, and seize opportunities, ensuring sustainable growth and success in a complex world.
References
CLDigital. (2023, June 23). The future of Enterprise Risk Management: Embracing a Digital Era - CLDigital. CLDigital. https://cldigital.com/blog/the-future-of-enterprise-risk-management-embracing-a-digital-era/
Evotix. (2023, July 24). 10 Reasons Why Risk Management Is Important | Evotix. Evotix. https://www.evotix.com/resources/blog/reasons-why-risk-management-is-important
GmbH, L. (n.d.). What is Technology Risk? Types & Examples | LeanIX. Www.leanix.net. https://www.leanix.net/en/wiki/trm/what-is-technology-risk
Hayes, A. (2024, February 20). Enterprise Risk Management (ERM): What is it and how it works. Investopedia. https://www.investopedia.com/terms/e/enterprise-risk-management.asp
Marker, A. (2021, April 7). Enterprise Risk Management Examples l Smartsheet. Smartsheet. https://www.smartsheet.com/content/enterprise-risk-management-examples
Sheedy, E. A., & Jepsen, D. (2018). Interim Report: Risk Management maturity in large Australian superannuation funds. Social Science Research Network. https://doi.org/10.2139/ssrn.3171833
Singh, R. (2024, January 18). What is LogicManager and use cases of LogicManager? - DevOpsSchool.com. DevOpsSchool.com. https://www.devopsschool.com/blog/what-is-logicmanager-and-use-cases-of-logicmanager/
What is risk management? | APM.(n.d.) https://www.apm.org.uk/resources/what-is-project-management/what-is-risk-management/
What is risk management & why is it important? | HBS Online. (2023, October 24). Business Insights Blog. https://online.hbs.edu/blog/post/risk-management
Yours sincerely,
Brendan, Chin Ren, Wei Lun, Ridwan, Abdulrahman, XinKher
Good concept and tools for risk management; ways to manage risk as an entrepreneur in current digital world
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