Risk management is one of the top concerns for many businesses, especially as the economy has been battered by the Covid-19 pandemic. So what is risk management? What features must an enterprise risk management application have? What is an effective risk management process? Let's explore these questions with Sbiz.vn in the article below!
Understanding enterprise risk management
The concept of risk management
Put briefly, enterprise risk management means setting an appropriate business strategy based on collecting, identifying and evaluating information to prepare well for uncertain events that may affect the project's objectives, with negative or positive impact. This helps control or minimize the consequences of negative impacts and enhance the effect of positive ones.
The concept of risk management
Types of risk
Business risks are divided into 4 types:
Strategic risk
Risks arising from issues related to the business environment, governance and stakeholders such as investors, competitors, customers... For example: resource allocation plans, divestments, acquisitions, mergers, the media environment, the business environment...
Operational risk
Risks related to using resources effectively in day-to-day activities, or risks from culture, people, systems, processes... or from the impact of external events.
Financial risk
Risks arising from financial transactions, including buying and selling loans, investments or other business activities. For example: exchange rate, interest rate, liquidity, capital structure, tax, commodity price and credit risks...
Financial risk is one of the types of risk businesses need to watch today
Compliance risk
Compliance risks are risks related to complying with the business's internal rules/regulations, the State's laws and other legal documents relevant to the business's operations, and legal issues related to commitments/contracts.
The risk management process
Each issue has its own way of managing risk. Overall, however, they all follow the same basic process:
Step 1: Identify the risks
The goal of this step is to help the business recognize and identify all the risks that may affect the organization and have negative or positive effects on its project objectives.
Step 2: Analyze the risks
After identifying all possible risks, the business needs to analyze in more detail the likelihood, consequences and degree of impact each risk may have on the project objectives set.
Step 3: Rank the risks
The next step in the enterprise risk management process is ranking the identified risks into levels (unit-level risks, enterprise-level risks) based on their potential impact. This makes management more convenient and helps determine the business's tolerance for each type of risk.
After identifying and analyzing risks, the business needs to rank them by potential impact
Step 4: Plan the response
In this step, the business plans and builds specific solutions to reduce the probability and impact of negative risks to an acceptable level.
Step 5: Regularly monitor, review and evaluate risks
During and after carrying out the response plan, the business needs to regularly monitor and evaluate risks and report on progress and results achieved, so it has a good grasp of the situation when problems arise and can make necessary, timely adjustments.
This is also an important basis for the business to make its next risk management plans more complete and improve internal control effectiveness.
What tools and techniques does the risk management process need?
Each risk management step needs to be supported by corresponding management tools and techniques, specifically:
For risk identification, the necessary analysis tools and techniques include: SWOT analysis; cause-and-effect analysis; data quality assessment; document analysis; analysis of assumptions and constraints;...
Risk analysis: root cause analysis; constraint analysis; project management information systems; data quality assessment;...
Risk ranking: Based on information and data from scenario analysis; Bayesian statistics and Bayes nets; project management information systems; expert judgment; data quality assessment...
Risk response planning: Based on root cause analysis; data quality assessment; defining strategies to respond to risks; analysis of alternatives...
Risk monitoring, review and evaluation: Carried out through meetings; project management information systems; issue checklists; expert reviews...
In addition, to manage risk effectively, specific, accurate and synchronized data and information on the business's current production and business operations are an essential factor. With the SmartBiz ERP platform, businesses can easily capture accurate information and data on their specific activities at any point in time, so they can recognize and identify problems better and improve risk management effectiveness.
>>> See also: ERP systems - the optimal operations management solution for businesses.
ERP platforms help businesses manage risk more effectively
In short, clearly understanding the concepts, processes and necessary tools and techniques of risk management helps businesses anticipate possible risks and plan appropriate responses, avoiding unnecessary losses. Risk management combined with an ERP system helps businesses optimize management effectiveness and ensure they achieve their goals - a smart solution chosen by many organizations today!