Risk management

The risks are those odds can get turn a threat into a disaster . It is important to mention that vulnerabilities alone do not pose an imminent danger, however, when put together, they can then become a real risk. These can also be reduced , eliminated or managed correctly when good risk management is implemented .

What is risk management?

Risk management is a very important process in companies through which all possible risks that may arise can be identified and evaluated with the main objective of being able to create a plan to reduce and control them , thus avoiding risks. negative effects that they may produce.

It is a mechanism through which a series of risk management strategies are used , which are tactics that are used to be able to face the problems and also be able to understand the possible consequences that the risks may bring. This plan must be documented in written form and it will include the way in which the company can identify and address risks and the strategies to face them.

What is it for

Risk management is used to create a process that includes planning , proper organization , direction and control of all the resources that exist in a given company in order to minimize risks. It is the means by which administrators have the option of being able to deal effectively with all uncertainties , which if not studied and analyzed can become a risk.

It is a mechanism that serves to strengthen the decisions made based on the selection of the best alternative responses to risks . In the same way, it manages to reduce the possibility of potentially dangerous events and has the ability to establish appropriate responses to them to reduce or even eliminate the surprises and costs that are associated with business risks. Business risk management gives the company the option to find effective responses to the impacts that are related to each other, promoting the creation of appropriate rebuttals andintegrated in the face of risks.

Types of risks

One of the most important steps to establish adequate risk management is to identify the types of risks, which have an important influence on the development phases of the same. It is possible to find the following types of risks that can affect a company:

• Financial risks : these risks are related to factors and situations that can affect so direct the economy of a particular company and can cause dangerous situations.
• Legal risks: here it is possible to find the risks that are related to the legal and contractual aspects . They include problems related to the lack of compliance with the requirements or terms and conditions, civil lawsuits, violation of laws and the misuse of intellectual property.
• Sociopolitical risks : refers to the risks related to changes that may occur in society and politics and that may directly affect the transactions that exist between countries, generating contradictory situations that affect the mechanisms of cooperation and business between companies. .
• Environmental risks : they are linked to the sustainability of the supply chain , a fundamental part of companies.
• Planning risks : in this group you can find all the factors that exert a negative influence on the creation and development of the planning .
• Internal risks : are all those risks in which some kind of influence or control can be exercised . Here we can find the hiring of personnel, the estimate of the cost of operations or materials among others.
• External risks : refers to those risks over which companies do not have any type of control , for example, government decisions, the volatility of market prices and the increase in interest rates.

Risk management systems

There are several systems that exist for risk management in companies, among them we mention some of the most important:

• OHSAS 18001 : is a British standard that operates internationally and is used for the implementation of occupational health and safety management systems.
• ISO 27001 : allows the evaluation of risks and then apply the necessary controls to eliminate them.
• ISO 22301 : it is a system that allows to recognize the fundamentals of the management systems by means of which the processes, principles and terminology can be defined.
• ISO 28000 : this is the first international standard that is related to the security of supply chain risks.
• ISO 22000 : is in charge of establishing and detailing all the requirements to be able to implement a good food safety management system.

Methodology

To achieve a good risk management plan, it is necessary to find the risks to which companies are exposed. For this reason, analyzing internal control and preparing plans are two of the main aspects of the methodology to be followed. For this, a series of manuals are made that include the following aspects:

• Business schemes
• Risk policies
• Risk maps and policies
• Insurance plans
• Risk reduction plans

These points are generally included in software, which are used as part of the methodology. Examples of them are the ISOTools that manages to establish different types of methodologies and the COSO cube , which has important principles related to risk management.

The response plans related to risk management are shown as a contribution to the updates that are used to manage a project. Among the answers it is likely to find the acceptance of risk and then carry out a passive or active strategy. On the other hand, contingency responses can also be found which imply alternative emergency plans that can be executed in special situations.

ISO standards

The international standard used for proper risk management is known as ISO 31000 , which functions as a type of guide and principles that help companies and organizations in risk analysis and evaluations . This standard applies to companies of all types, public , private or community, and can also act in different business activities that include planning , management operations and communication processes .

Thanks to the ISO standards, it is possible to implement the principles and guidelines in companies to improve the efficiency of operations , governance and the confidence of companies to reduce losses to the maximum. It also helps to promote safety and health within the organization by establishing a concrete basis to be able to make good decisions while promoting proactive management in all business fields.

Advantages of risk management

Among the main advantages of risk management are the following:

• It allows to identify and control the risks and threats that are present in an organization and prevents future risks.
• It uses a dynamic and flexible approach that manages to correctly face the changes that may occur in the organization.
• It manages to determine strategies that optimize decision – making and planning .
• With it, strategic , tactical and operational objectives can be met .
• It establishes different action plans that guarantee the operation of the company.
• Safeguards all business operations as well as its operation .

Disadvantages

Some of its possible disadvantages are mentioned below:

• It may be that in some cases the ideal methodology is not chosen to be able to raise the strengths and weaknesses.
• The methodologies used are not subjective since they are not mathematical .
• The auditor may be subject to tensions as it is he who must maintain the trust of the user.
• Some legislative determinations that protect the data.

Importance of risk management

Risk management is of utmost importance in companies because through it it is possible to find and solve the dangers to which they are exposed in order to find the best measures to implement all the processes considered necessary to reduce or even eliminate the dangers to which the company is exposed.