Sometimes, the easier option for an organisation’s leaders or business owners is to “bury their heads in sand” and not think about potential hazards that the organisation may face. “We will handle it when it arises”, is a sure way of potentially bring the organisation to its knees. It has probably been playing up on your mind sub-consciously and it is time to deal with it, rather than spend time worrying about what may go wrong.
Risk is the possibility of experiencing an event that could cause harm, loss, or disrupt operations. Risk is measured in terms of probability and impact to the organization. Probability is the likelihood of an event occurring. Impact is the effect of an event to the organization.
There are various schools of thought on the types of risks but the main types are as follows:
1. Strategic Risks
2. Business/Financial Risks
3. Operational Risks
4. Compliance Risks
5. Reputational Risks
6. Market Risks
7. Environmental Risks
8. Program/Project Risks
Risk assessment is the process of identifying threats, estimating probabilities and impact, prioritising risks, and ultimately evaluating and improving risk controls. It is a very critical process and yet underestimated.
Risk controls are procedures, devices, or mechanisms used to reduce risks. By improving risk controls, your organisation will enhance resiliency, the ability of the organisation to withstand a disruptive event. The assessment would entail an analysis of the entire organisation, including administration, employees (human resources), facilities, finance, operations, sales and marketing, security, technology, and all other major operational and support areas of your organisation. The focus ought to be on the organisation’s ability to conduct normal operation.
Risk assessment is comprised of these six steps:
1.Identify threats to an organization.
2.Estimate the probability that an event occurs.
3.Estimate the impact of the event to the organization.
4.Determine a relative value of the risk based on estimated probability and impact.
5.Prioritize risks.
6.Evaluate risk controls that are in place and recommend steps to improve organizational resiliency.
A fundamental principle of risk management is that all risks cannot be completely eliminated. The primary objective of risk management is to reduce risks to an acceptable level. Risk tolerance (risk appetite) is the level of risk that an organization is prepared to accept.
Risk treatment is the selection of risk controls for managing risk. As this process will almost always require an expenditure of time and/or money, so risk treatment will need to demonstrate value.
Risk treatment will fall into one of the following categories:
1.Risk avoidance – the risk is eliminated.
2.Risk transfer – the risk is in part or in total assigned to another.
3.Risk reduction – the likelihood or impact of the risk is reduced.
4.Risk acceptance – to the extent that the risk cannot be avoided, transferred or reduced, the risk is retained.
It is imperative that an organisation’s risk profile be managed in order to sustain the success of a business. There ought to be the confidence that the barriers to any threats or hazards that may impede the growth and success of the organisation, are in place.
How can The CFOO Centre help?
We can guide you through the process through the process of creating a framework to considerably lower and indeed eliminate your exposure to any risks. Contact us for a free, simple, non-binding and confidential appointment to deliberate on your specific situation. Thereafter, we can decide on a proposal for support where the methodology will be discussed with you. We will match your needs, planning and budget specifically. We believe our firm will be more than just an advisor, as we will put ourselves in your shoes, align ourselves with your objectives and work together to unlock the full potential of your organisation.