Risk Management. Win, don't lose
Risk management
At this stage, strategies are developed and implemented to minimise costs and reduce the impact of potential losses on the business as a whole. The objectives of risk management are defined: minimising financial loss, safety and protecting the company's reputation.
Safety is at the heart of the business. The activities of the company, its employees and partners must comply with laws and ethics, internal and external standards. Compliance, the system of security and internal control, must be thought through in advance. Failure to comply with generally accepted standards and regulations can result in damage to both the company and its customers.
Risk management strategies may include: diversifying the business portfolio, taking out insurance, implementing safety and quality control systems and developing business continuity plans.
At this stage, strategies are developed and implemented to minimise costs and reduce the impact of potential losses on the business as a whole. The objectives of risk management are defined: minimising financial loss, safety and protecting the company's reputation.
Safety is at the heart of the business. The activities of the company, its employees and partners must comply with laws and ethics, internal and external standards. Compliance, the system of security and internal control, must be thought through in advance. Failure to comply with generally accepted standards and regulations can result in damage to both the company and its customers.
Risk management strategies may include: diversifying the business portfolio, taking out insurance, implementing safety and quality control systems and developing business continuity plans.
Monitoring and control
This stage involves monitoring the organisation's activities, assessing risk situations and the effectiveness of measures to address them. If new threats are identified, the organisation should be prepared to review or change management strategies and practices.
Monitoring is the regular updating of data to analyse risks and assess their impact on business operations. All business processes, even the simplest, need to be controlled in a regulated manner.
Risk management strategies should take into account regression principles: extremely risky or extreme events are usually temporary and may be an anomaly. In a crisis situation, extreme events will sooner or later return to normal and revert to the mean.
This stage involves monitoring the organisation's activities, assessing risk situations and the effectiveness of measures to address them. If new threats are identified, the organisation should be prepared to review or change management strategies and practices.
Monitoring is the regular updating of data to analyse risks and assess their impact on business operations. All business processes, even the simplest, need to be controlled in a regulated manner.
Risk management strategies should take into account regression principles: extremely risky or extreme events are usually temporary and may be an anomaly. In a crisis situation, extreme events will sooner or later return to normal and revert to the mean.
The risk management process in any business (and in life) consists of the same steps: first identifying risks, then assessing them, trying to mitigate them by developing a plan of action, analysing them and controlling them.
In theory, risk management rests on 'three pillars': utility, regression and diversification. It is necessary to assess not only the probability of a risk occurring, but also its consequences for the company or the investor. Risk management decisions reduce the likelihood of financial loss. An investor allocates capital by assessing potential returns and risks in advance.
Identifying risks
The most problematic step is finding and identifying potential threats that could affect the business. It is easy to get stuck in this step - it can be very difficult to assess and accept the reality. In business, it's common to consider external influences: economic and political changes, market competition. And internal factors: management system problems, staff and employee issues, changes in products or services.
When analysing the external environment, evaluating internal processes and predicting future events, it is important to consider the risks associated with: major suppliers leaving the market, disagreements between partners, financial uncertainty, legal obligations, technological problems and strategic management errors.
Risk analysis
This stage assesses the likelihood of occurrence and the level of impact on the business of all identified risks - qualitative analysis of likelihood and impact. Collected statistical data is usually used to build qualitative models of possible risks.
Risks are assessed:
In theory, risk management rests on 'three pillars': utility, regression and diversification. It is necessary to assess not only the probability of a risk occurring, but also its consequences for the company or the investor. Risk management decisions reduce the likelihood of financial loss. An investor allocates capital by assessing potential returns and risks in advance.
Identifying risks
The most problematic step is finding and identifying potential threats that could affect the business. It is easy to get stuck in this step - it can be very difficult to assess and accept the reality. In business, it's common to consider external influences: economic and political changes, market competition. And internal factors: management system problems, staff and employee issues, changes in products or services.
When analysing the external environment, evaluating internal processes and predicting future events, it is important to consider the risks associated with: major suppliers leaving the market, disagreements between partners, financial uncertainty, legal obligations, technological problems and strategic management errors.
Risk analysis
This stage assesses the likelihood of occurrence and the level of impact on the business of all identified risks - qualitative analysis of likelihood and impact. Collected statistical data is usually used to build qualitative models of possible risks.
Risks are assessed:
- non-financial, not related to the loss of money (operational, legal, reputational, regional, transfer)
- dynamic, whose likelihood and consequences depend mostly on external factors (political, economic, social, environmental and professional)
- static (force majeure, emergency, disaster)
Diversification
Diversification is a key investment and risk management strategy. By investing in different assets or markets, funds can be allocated in a way that maximises protection from potential external threats.
Diversification reduces the overall level of risk, thereby reducing the likelihood of significant losses if any of the assets or sectors involved experience problems. Investment risks include: liquidity risk, credit risk, issuer risk, selection risk and currency (or price) risk.
Eifos Hub analyses clients' businesses at the business plan stage, builds qualitative models to analyse the reliability of the management system and implements risk management schemes. By advising potential investors, Eifos Hub helps them to diversify their investment portfolios by investing in assets with different levels of risk.
Diversification is a key investment and risk management strategy. By investing in different assets or markets, funds can be allocated in a way that maximises protection from potential external threats.
Diversification reduces the overall level of risk, thereby reducing the likelihood of significant losses if any of the assets or sectors involved experience problems. Investment risks include: liquidity risk, credit risk, issuer risk, selection risk and currency (or price) risk.
Eifos Hub analyses clients' businesses at the business plan stage, builds qualitative models to analyse the reliability of the management system and implements risk management schemes. By advising potential investors, Eifos Hub helps them to diversify their investment portfolios by investing in assets with different levels of risk.
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