What is Risk Management, What are its Stages?

You may have seen that some businesses have risen rapidly in a short time, some have grown over the years with determined steps, and some have disappeared no matter what they did. The process that will cause all these results is risk management. Because business owners and managers know that every step to be taken or not to be taken in the business world, carries a great risk for the business itself and its future.

Companies with a well-established corporate structure run the risk management process in a regular and planned manner, and take precautions against adverse situations that they may suddenly encounter. Of course, no matter how well the process is implemented, there may be surprises such as the COVID-19 pandemic. But still apply good risk management, It will prevent many obvious mistakes from being made and will ensure that businesses always have an emergency plan.

What is risk management?

Risk management, also called enterprise risk management; organizations identify threats to their capital and earnings, It is a process by which they evaluate and create counter-plans. While it is a professional definition, even the smallest business needs a risk management process.

In the risk management process, only the risks that will trouble the business are not evaluated. In this process also The risks that will result in favor of the company are also evaluated. Because taking risks is often like flipping a coin. However, unlike games of chance, a decision in favor of the company is taken as a result of the risk management process.

In this process, the risk appetite of the enterprises is calculated. well how big a risk the company is willing to take, this situation arises. Companies with a high risk appetite are ready to play big. Companies with a low risk appetite may follow a certain strategy by taking small risks and avoiding big ones. As we said, the important thing is that the result of the risk taken is in favor of the company.

Is risk management really important?

Take a look at the world economy, don’t you think it’s important? Every step to be taken or not to be taken in the business world carries great risks. Imagine the risk taken by a company that invests all its capital in blockchain development due to the rapid rise in cryptocurrencies. Imagine if the blockchain system consisted of crypto money, how many companies went bankrupt?

Amazon’s opening its world limited to book sales to the entire retail sector, From a company that ships DVDs to Netflix’s homes The fact that it has become the number one digital broadcasting platform in the world today is the result of the risk taken. Such examples can be multiplied. However, the examples of companies that fail as a result of the risk they take are perhaps thousands of times more than successful ones.

Perhaps no company was considering the possibility of a global epidemic until the COVID-19 pandemic took its toll and emerged. However companies that laid the foundations of the mobility system designated for a similar situation, During the pandemic, she made her employees work at home and survived this process in the most harmless way. So a plan B should always be established through the risk management process, even if it may never be implemented.

Risk management process and considerations:

The risk management process can be determined by the company’s own experts, or processes that have already been determined can be operated. For example, the International Organization for Standardization Prepared in ISO 31000 standard there is a Risk Management guide. According to this guide, the risk management process consists of 5 basic steps;

• Identifying risks
• Calculating the probability and impact of a risk
• Prioritizing risks that will affect business objectives
• Fix risk conditions
• Monitoring, monitoring and responding to results

According to the Interagency Report prepared by the National Institute of Standards and Technology, briefly NIST in the adverse risk scenario handled in the risk management process There are 4 essential factors that must be present;

• Identifying valuable assets to be affected
• Identifying the source of the threatening effect
• Determining why and how the source of the impact that will create a threat takes action
• Identification of other damages to be caused by the source of the threatening effect

How to start the risk management process?

• A communication and consultation plan is established to develop risk awareness.
• Factors such as business objectives, corporate culture, regulatory legislation, and political environment that will determine risk appetite are evaluated.
• Risk scenarios that may have a positive or negative impact on the organization’s ability to do business are identified.
• A risk heat map is determined based on the impact of the defined risk scenarios on the company.
• By evaluating the risks; Strategies are developed for risk avoidance, risk reduction, risk sharing, risk acceptance.
• Risk treatment is initiated with an implementation process in line with the determined strategy.
• The results of the applied process are observed and the process is recalculated when necessary.

What are the advantages and challenges of risk management?

• Advantages of risk management;
  • It creates risk awareness throughout the company.
  • Confidence in goals and objectives increases as risks are taken into account.
  • Since it is organized within the scope of the process, the works are carried out much more efficiently.
  • Since it is organized within the scope of the process, the application processes work much more efficiently.
  • Increases the trust of employees and customers in the business.
  • It enables the company to stand out in the market competition.
• Challenges of risk management;
  • Initial expenses can be high.
  • The first period of process implementation can be difficult for everyone.
  • During the risk management process, fights can break out and mess up.
  • There may be many who will oppose the risk management process until results are obtained.

What are the objectives of the risk management process?

The risk management process is the companies’ own can be customized according to their goals and purposes. However, the ISO 31000 standard, which provides a framework in this regard, sets out 11 risk management principles, namely targets, that companies should reach at the end of the risk management process;

• Creating value for the organization.
• Making the risk management process an integral part of the company.
• Influencing the decision making process positively.
• Making uncertainties open to be addressed.
• To achieve a systematic and structured implementation process.
• Revealing the best information available.
• Optimizing the implementation process for the project.
• Detecting potential errors before they occur.
• To provide transparency.
• Adapting to change.
• To create an implementation process that is constantly monitored and open to improvement.

At the end of a risk management process, the objectives to be achieved or to be achieved by the enterprises in general are determined in this way. However You don’t have to be limited to these. These targets can be reduced or increased according to the risk appetite of the business.

It allows you to take safe steps in the dangerous waters of the business world. what is risk management We answered the question and talked about the details you need to know about this important process. Whether small or large; All businesses must have a unique risk management process.