Effective Business Risk Management | Fund Business Solutions

Business risk management is an important process for successful ventures, including corporations, sole-proprietorship?s, and partnerships. Although non-profit organizations can also be exposed to risks in their operations, businesses are different in that they are primarily concerned about the bottom line and rate of return. Therefore an effective business risk management strategy is vital to achieving the business? objectives. A business risk management strategy includes risk assessment, risk analysis, risk prioritization, and action plan development.

The benefits to the organization of a formal risk management process include increased credibility in estimates and forecasts, increased competitiveness, and reduced incidences of fraud. Effective business risk awareness includes the development and implementation of a Risk Management Policy that outlines how the company will identify, measure, and respond to risks.

Inadequate risk policies also often lead to wasted management hours spent reacting threat events after-the-fact. Furthermore, without well-designed policies and templates in place the management team may waste considerable time looking for or preparing for risks that do not pose a material threat at all.

Today?s rapidly changing marketplaces means that companies are increasingly exposed to all types of business risk, including;

Legal Risk ? personal injury, copyright infringement, contractual disagreements, employee conduct
Structural Risk ? appropriate company structure in place to protect the company?s interests and its access to capital
Insurance Risk ? adequate insurance (both size and scope) in place, understanding which actions will void current insurance
Market Risk ? achievable sales levels, other market players, barriers to entry
Financing Risk ? ability to finance a project must be subjected to a risk analysis
Stakeholder Risk ? key distribution channels, power of suppliers

Business risk management planning is vital for any successful business. The threats to success for a new project, change in strategic direction, or change in operational process must be taken in to account when quantifying the rate of return. Beyond specific policies in place to analyze courses of action, the company must embed an organizational philosophy of risk management. The ability to understand and analyze risk most not be mistaken for being risk adverse. A business that views risk as a zero-sum threat will assuredly reduce its ability to compete and to function effectively; the company will not undertake directions that produce sufficient return to keep the business a going-concern. The company and its organizational stakeholders must be willing to discern and welcome manageable levels of it, and accept responsibility for controlling its management and mitigation.

It is sometimes the case that with effective business risk management strategies in place the firm will actually undertake an action with more risks than another similar course of action, simply because the risks of the first action are more easily avoided or managed. While it is important that the business risk manager recognize events and scenarios that could negatively impact the company?s objectives, of greater importance is understanding the impact of risks themselves. For instance, it would be difficult for a business risk officer to predict specific problems in the Middle East and its effect on energy prices. However, the officer should recognize how changing energy prices impact the firm, and have an action plan in place to counter any negative effects, no matter the root cause.

An important component of business risk management is to benchmark the company?s internal risk auditing versus the best practices of other firms in their industry and markets. The improved ability of the company to adequately anticipate risks and threats will enhance the company?s ability to secure financing and insurance. An accurate understanding of a plan?s challenges as well as the keys to success will lead to more robust pro-forma financial statements. Consequently the firms ability to assess the net present value of a course of action is enhanced.

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