Audit and Assurance

The Importance of Risk Management in Business

October 9, 2018 Comments Off on The Importance of Risk Management in Business

In the modern business world, every organization faces risks; without risk there is no growth or reward. Risk management is the process of recognizing risks in advance and includes analyzing and taking precautionary steps to reduce the risk. In the financial world, risk management involves identifying and analyzing the risks in financial instruments before any investment decision.

Risk assessment is a part of risk management process that helps in identifying, analyzing the risk factors and determining the appropriate solution to eliminate or avoid the hazard caused by the risk factors. It is a continuous study of your organization to recognize those things, processes or situations that may cause harm to the working of your business.

Need for Risk Management in Dubai, UAE

Dubai is now considered as an international business hub and has created a milestone in the environment of business. In the recent years, the number of incorporations in the Emirate is increasing due to the plentiful offers and opportunities provided by the government. Investors are looking forward to setting up their business in the region to reap all the advantages available to them. The more the competition increases, more are the risks which are faced by a comapny. So, it is equally important to adopt risk management practices in an organization to retain the performance and efficiency of your firm. In a fast-growing economy like Dubai, risk management will be beneficial in the following ways:

Advantages of Risk Management

  • Risk management helps in identifying and analyzing any potential business risk
  • It enhances the reputation of a firm
  • It saves time and cost of the organization
  • Risk management plan acts as a credit tool
  • Risk management protects the company’s resources
  • The risk register can be used for future reference

Risk Management Process

  1. Identify the Risk

The first step in the risk management process is to recognize the risk. This requires a thorough study of your organization and discussion with the staff. It is necessary to look for the risks which harm the business activity and goodwill of the company.

  1. Analyze the Risk

Once you identify the risks, you must determine the consequences of each risk. In this stage, you try to understand the nature of the risk. You also try to determine its effect on the objectives and goals of the company.

  1.  Rank or Evaluate the Risk

In this step, you look for the magnitude of the risk and triage it accordingly. These risk rankings help in identifying the seriousness of risks and it gives a brief idea on which risk should be given priority.

  1. Treat the Risk

This is a risk response planning step where you assess and set out a plan to modify your highest ranked risk. You use risk preventive plans, risk mitigation strategies, and contingency plans to achieve acceptable risk levels.

  1. Monitor and Review Risk

In this step, you will monitor and control to avoid the risk in the future. The present risk is continually monitored and analysed so that the best possible solution of the problem can be found by the management.

Risk Management Plan

A risk management plan is a detailed document prepared by the management to anticipate the risk, evaluate the impacts, and list out the responses to issues. One can prepare a risk management plan by following the steps listed below:

  1. Risk Identification

You need to identify the risk and prepare a risk register to list down the risks. This reisk register will be useful in the future.

  1. Risk Analysis

The next step is to identify and analyze the risk on the basis of likelihood and level of impact on the organization’s performance.

  1. Risk Trigger Identification

In the next step, your team has to study the risk carefully and identify the triggers for those risks.

  1. Finding the Solution

Every team will come together to discuss the solutions for identified risks in the organization. In this step, the collective opinions are taken by performing a brainstorming session.

  1. Creating a Plan

Once the risk solutions are found, the risk management team will document all the identified risks and solutions in risk register for the future use.

  1. Risk Monitor and Review

The risk register has to be reviewed at regular intervals of the project to make changes in the solutions.

Types of Risk Management

  • Enterprise risk management
  • Operational and financial risk management
  • Market risk management
  • Credit risk management
  • Quantitative risk management
  • Software and IT risk management
  • Bank and currency risk management
  • Project risk management
  • Commodity risk management
  • Integrated risk management
  • Technology risk management

Risk Management Techniques

Here are some of the ways by which a company can actually avoid such risks.

  1. Avoidance of Risk

The simple way for a business to manage its risk is to avoid it to some extent. A business can avoid risks by not engaging in activities known to carry the risk of any kind.

  1. Risk Mitigation

An enterprise can manage risk through reduction or mitigation. The mitigation is to decrease the negative impact of any known risk which is unavoidable.

  1. Risk Transfer

In some cases, an organization can manage the risk by transferring it away from itself.

  1. Risk Acceptance

At times, companies retain a certain level of risk if the expected profit generation is more than its potential risk.

Thus, all you need is a risk management plan in your organization to keep up your business. It is advisable to get assistance from a consultant to get the necessary information on risk management. At Jaxa, we assist our client in protecting their organization from risk and help to run the business smoothly in the world of risk. We can also advise you with regard to disaster management and business continuity. For any risk management assistance or service in Dubai, contact us – we’d be happy to be of assistance.