Risk Management

It is important for businesses to create risk management plans that are appropriate for their company.  They may look to best practices as a guide to create their risk management plans, but a cookie cutter approach does not always work.  Every business is different even if they are in the same industry.  They each have their own acceptable levels of risk and their assets are not always valued at the same level as another company. 

            The amount of money a business spends on their risk management plan also varies from company to company.  A small or large budget may be required, but how effective and well managed their risk management plan is will play a large role in the overall cost of it.  Companies that compare how much they each spend on risk management may prove to not be as helpful as some have previously believed.  It could help determine a general guideline for how much the company might need to spend, but it is not an absolute amount.  Jack Jones has given a great example on how to determine how much you should spend.  He compares it to buying car insurance.  You can get an estimate how much most people are paying, but you will not use that as your only reference.  You would want to know how much coverage you would need based on risks and assets as well as if are there enough funds to pay for it. 

            Leadership can often be left out of this equation.  If management does not believe that there is much risk despite what they have been told, the company will surely be in poor condition in regards to the risks they are taking.  Risk management should influence company policies, priorities, initiatives and actions.  If a business only has the tolerance for low risk, their decisions should reflect that.  Keeping this in mind is key to successful risk management.  It is also important to make changes to the risk management plan when necessary.  If the company cannot mitigate a risk that they previously could, they need to evaluate how it will affect the company overall and change their policies accordingly.  Keeping employees informed of risks and how their decisions can affect the company’s overall risk is also important. 

            Every business faces their own unique types of risk.  To manage their risk appropriately they must examine how much risk they face, what level of risk they can tolerate, how much they can spend to mitigate their risks and how their policies reflect their risk.  Using best practices as a guideline will help keep them on track to effectively managing their risk.  Ultimately it is up to the company to develop their own risk  management plan that is tailored to meet their needs.

References:

Jones, J. (2011). To Be FAIR About It A perspective on risk and risk management. Retrieved Oct 22, 2013, from Risk Management Insight: riskmanagementinsight.com/wp-content/uploads/2011/03/to-be-fair-about-it-v1.pdf