There has been a lot of talk lately about risk management. Not that it is a new topic, but the times are such that the degree of uncertainty and uncertainty is so great that it forces each of us to manage risk to some degree and in a way that we determine to be correct and adequate.
Daily, organizations are faced with internal and external factors and influences that create uncertainty – whether, when and to what extent they will be able to achieve their goals. The effect that this uncertainty has on the organization’s goals is a risk.
An important feature is that the risk can have positive and negative consequences. This means that risk can expose the organization to both threats and opportunities. But in both cases, how the risk will be managed is crucial.
Risk management is an integral part of the overall management of the organization. And effective risk management is achieved only when it is fully integrated into the system and management processes of the organization.
Principles of risk management
- Risk management supports the creation and protection of value. The purpose of risk management is to help the organization achieve its goals. The assistance consists in detecting and influencing the factors that give rise to uncertainty. In this way, the risk is not managed by itself, but in a way that allows the goals to be achieved and the results to be improved.
- Risk management is an integral part of all processes in the organization. The activities performed by the organization, as well as the decisions it makes lead to the emergence of risk. Therefore, risk management is not considered as a separate activity, but is part of the responsibilities of management and is an integral part of all processes in theorganization,including strategic planning, project management, change management.
- Risk management is part of decision making. Risk management enables informed decision making. When decision-makers have the necessary information, they can make informed choices to identify possible decisions, prioritize and differentiate between different alternatives.
- Risk management explicitly addresses uncertainty. Risk managementconsidersthe nature of the uncertainty, its impact on the objectives and ways to eliminate it. Risk can only be successfully managed or managed if the nature and source of the uncertainty are understood. An important point is to perform an in-depth analysis of uncertainty to prevent its underestimation or overestimation.
- Risk management is systematic,structured,and timely. Risk management requires the introduction of organizational practices that consider the risks associated with all decisions. It is crucial that the risk management process is implemented at the right time to make decisions. Otherwise, favourable opportunities may be lost, or significant losses may be caused.
- Risk management shall be based on the best available information. The quality of the available information is crucial for a proper understanding of the risks. Sources of information can be data from past periods, experience, feedback, observation, analysis, expert evaluation. Sometimes the information available may be limited, which must be considered in decision-making, as well as any other type of uncertainty associated with it. The reliability and accuracy of the information must be assessed regularly for accuracy, applicability, and timeliness.
- Risk management is adaptive. To meet the needs of each organization, risk management must be applied in accordance with the external and internal environment and the characteristics of the organization. Every organization is different and has its own culture, environment, management style and there is no single and correct way to develop and implement the risk management process. Flexibility and adaptability are needed to achieve the desired result.
- Risk management considers human and cultural factors. People’s behavior, their abilities, and perceptions can facilitate or hinder the achievement of the organization’s goals, which is a risk and must be managed. Managers must consider the influence of human and cultural factors and understand and manage their impact by:
- showing respect and understanding of individual differences.
- respect people’s views.
- recognize the efforts of individuals.
- value knowledge.
- show objectivity, etc.
- Risk management is transparent and inclusive. The principle presupposes the appropriate and timely participation of all participants in the process and especially of those who make the decisions. Stakeholder participation in the process allows them to clearly present their views to be considered in risk management. The key to applying this principle is building trust. Trust is a fragile and particularly sensitive condition that can be easily broken. To avoid this, relevant stakeholders need to be involved at every stage of the risk management process. In this regard, the issues of ensuring confidentiality, security, and protection of the information provided and used in the process become especially relevant.
- Risk management is dynamic, repetitive, and responsive to change. Any change in the external and/or internal environment or in the goals of the organization inevitably leads to a change in risks. Successful risk management implies that the process is designed in a way that reflects the dynamics of change, whether in the organization or in the external or internal environment. Because every change leads to the emergence of new risks, disappearance, or change of existing ones.
- Risk management facilitates the continuous improvement of the organization. Improvement is at the heart of everything. There must be continuous improvement in the risk management process as well as in every other aspect of the organization. Of course, the process should not be overly complicated, because in this way the opportunity to look for favourable opportunities will be limited, and the flexibility of the organization’s response will be reduced.