The Evolution of Risk Awareness among Organizations
Commercial entities have evolved dramatically over the past century, and one of the most important facets of this evolution is the increase in risk awareness. This risk awareness is what gave impetus to the concept of publically traded companies and the company as a distinct legal entity.
Essentially, organizations have become increasingly aware of the risks that they face, and how they can inundate themselves from these risks. For the nascent organization, however, learning how to assess and manage risk is not something that should be done on the job, as it can leave said organization open to all manner of legal and financial turmoil.
How to Manage Risk
There is a template for risk management that can be followed in order to create an organization that can successfully manage risk. This system involves three steps that must be followed in succession, forming a chain of risk management of sorts.
- Strategy:The Company must assess the possibility of risk and plan how these risks can be contained. This involves creating a solution for as many contingencies of each risk as possible.
- Optimization: Once the various possible risks have been planned for, a streamlining of the processes that occur within the company must occur. This is done in order to reduce the possibility of each risk. Prevention is the best cure, after all.
- Plant solutions: Ready the cure, prevent it from ever being used, and then the final part of the risk management process This involves integrating the solutions to the problems that the organization might face, so that when a crisis does occur it can be managed without disrupting the day to day operations of the organization itself.
Categories of Risk
- Strategic Risk:This is risk that comes with the territory. As a profit making enterprise, an organization is going to execute business plans. The failure of such a business plan is a strategic risk, which means that it is necessary and can be planned for.
- Preventable Risk: These are risks that are unnecessary, and so are planned for so that they do not waste the resources of the organization.
- External Risk: These are risks that are outside the control of the organization. Planning for them is futile and will only waste resources, so organizations tend to plan internal responses to these risks instead of trying the manage the risk itself.