To mitigate risk — the possibility that something unpleasant or unwelcome will happen — it's important for entities to have a thorough risk management strategy in place. Especially today, given the global economic picture and what it may eventually mean for business in the U.S.
Economically speaking, we're not in Kansas anymore (if you think of Kansas as a calm, quiet state where you know what to expect). From an economic perspective, we have been picked up, swirled around hundreds of times by a violent tornado, and have now been put in a wild and unpredictable world created by the Federal Reserve. (For related reading, see: Why Would the Federal Reserve Change the Reserve Ratio?)
What is Risk?
This has completely changed the world of risk management. While risk management did play a role prior to the Financial Crisis of 2007-2008, it didn’t play nearly as big of a role as it does today. Back then, if an organization didn’t find a way to prevent or mitigate risk, it could still get back on track. This wouldn’t be a pleasant experience, but in most cases, there was no devastating blow. That is certainly not the case today. If an organization fails to prevent or at least mitigate risk via risk management strategies, it could very well fail.
An unexpected risk, for example, like a cyber-threat could shut down an organization for several days, perhaps longer. According to the U.S. Bureau of Labor Statistics, if a company can’t resume business within ten days, it's not likely to survive.
Despite that being the case, 75% of businesses today don’t have a plan in place for dealing with a cyber threat. (For more, see: The Evolution of Risk Management.)
Enterprise risk management can be broken down in many different ways. While there are many different forms of risk management, insurance is the most important. Insurance helps prevent losses, and fewer losses equal higher profits.
External, Internal Risks
There are two types of risks to an organization. External risks are those that are uncontrollable by management. Examples include politics, interest Rates, and exchange rates. Internal risks — things like employee non-compliance and informational breaches — are considered in direct control of management.
In regards to internal risks, if company leaders don't have risk management strategies in place, the firm will have considerable difficulty steering itself in the right direction. In order to solve this problem, there should be a dedicated risk management team, whether in-house or from an outsourced firm. The team will identify risks, develop solutions for dealing with them, execute strategies, and motivate all employees to implement risk management strategies when necessary. (For more, see: Why Risk Management Is Important.)
All organizations big and small should have a risk management team in place, but the bigger the organization, the greater the likelihood of risks. Therefore, strategies must be more comprehensive in order