4 Ways to Improve Your Risk Management Strategies
Even before a business opens its doors, owners and managers deal with risks. Routine decisions about things like product development, market-entry, and a supply chain and distribution structure come with inherent liabilities.
An organization’s breadth of resources, including employees and board members, can expose firms to risk. Industry conditions, government regulations, and competitors also create external threats of varying degrees.
The reality is that the business world is risky, no matter how you slice it. Effectively evaluating and managing a company’s weak points and outside threats is essential to long-term success.
Proper risk management strategies protect an organization’s interests, help leaders make better decisions, and create efficiencies. Improving those strategies along the way ensures they’re timely, relevant, and complete. Here are four enhancements to consider.
1. Incorporate Governance, Risk, and Compliance Tools
The thing about managing organizational risk is that it’s a dynamic process. Regulations and interpretations of them can change. Cybersecurity threats are constantly evolving as new malware programs and phishing tactics emerge nearly every day. Stakeholders across a company also shift, especially as businesses grow.
Trying to manually manage and track everything through spreadsheets can be unrealistic. Employees and stakeholders need to actively participate in governance, risk, and compliance (GRC). They can’t do that if there’s a lack of transparency or knowledge sharing. Plus, as things change, there needs to be a way for risk managers and stakeholders to see the big picture.
For instance, a new consumer privacy law will probably transform a company’s internal procedures and data storage practices. A GRC tool or solution helps organizations assess all implications of the new law. Risk managers and stakeholders can determine where procedural changes need to happen and coordinate their efforts. While these efforts often include employee training, they also involve preparing for audits and closing gaps GRC solutions help identify.
2. Assess What-If Scenarios
A good risk management strategy starts with the threats that currently exist. Listing the severity and likelihood of each of those dangers takes things a step further. A serious risk with high probability will take priority over a low-probability threat with minor implications. While classifying current risks helps direct mitigation efforts, strategies should also consider what-if scenarios.
Considering these scenarios requires an experimental mindset or an out-of-the-box thought process. You’re thinking about what risks your business could face in the short or long term. Risk managers and stakeholders also have to evaluate what could happen if the organization manages hazards in specific ways.
For example, a former Federal Reserve vice-chair states there’s a 50%-60% chance of a recession in 2023. An economic downturn is a potential risk that’s not guaranteed to happen. However, most businesses will need to prepare for this what-if scenario. The possible effects of a recession on a company will largely depend on its products and services and market segments. Necessities and staples might fare better than products and services viewed as luxuries.
3. Involve a Variety of Stakeholders
Those in charge of managing risk should not be the only people discussing what hazards a company faces. Nor should the risk management team consist only of executives and employees at the top of the organizational chart. Teams that think alike and have nearly identical perspectives will miss things that diverse groups bring to the table.
Involving middle managers and front-line employees is just as important as representation from different departments. Finance and technical staff members might bring up money and IT-related risks. However, they may not think of all the customer or client implications of specific risk management strategies. Marketing, sales, and customer service teams will probably contribute additional insights to make those strategies more comprehensive.
In addition, employees tend to place more importance on different metrics according to how they think and how they’re incentivized. Some might emphasize data points and numbers over what those points and numbers really mean. It’s imperative to give qualitative conclusions and perceptions ample consideration. Otherwise, an overreliance on specific measures might reinforce incorrect or incomplete biases.
4. Develop More Than One Plan
Risk management strategies should include more than one plan for various threats. It’s like coming up with plans A, B, and C for moving across the country. Plan A might be to secure a job before you go. If that doesn’t pan out, your first backup plan might be to save enough to live on for six months. That gives you enough time to find a job when you get there. But in case that idea doesn’t work out either, you plan to stay with relatives or friends.
Contingency planning goes hand in hand with assessing what-if scenarios. When managing risks, you have to think about everything that could go wrong. This includes the execution of risk avoidance, mitigation, transfer, and absorption strategies. Sometimes, only a few details or parts of a plan go astray. Other times, the entire approach blows up or falls flat.
Having alternative methods ready to go reduces a risk’s negative consequences. Say ransomware takes over the company’s systems because some of the cybersecurity controls failed. Other measures like offsite data backups and cybersecurity insurance can help absorb and transfer that risk. In addition, establishing response procedures before a cybersecurity threat happens can shorten the time it takes to restore operations.
Developing Your Risk Management Strategies
Because business risks continuously evolve, strategies for dealing with them can’t remain static. Instead, companies have to constantly evaluate and develop approaches to risk management. Business leaders can strengthen their methods by using holistic tools, determining possible outcomes, involving diverse stakeholders, and making contingency plans. While these methods won’t eliminate all risks, they can help to ease any adverse effects.
