What is Risk management


Defining of Risk

Risk is the risk of losing some or all of the benefits you were looking to earn or the uncertainty of a person or business in the future. Risk is not a negative concept. Opportunity is necessary for survival. It can disrupt the competition and benefit the risk-taker.

Risk Management – Introduction

That is, risk management is a strategy designed to prevent or minimize the potential harm to a company or individual in the future.

In short, risk management is about reducing or mitigating risk. It is identified by the risk identification process and the evaluation process. The use of resources can be optimized through monitoring and mitigation processes.

Alignment of business strategy and risk appetite should minimize the firm’s exposure to large and unexpected losses. In addition, the firm’s risk management capabilities need to be commensurate with the risks it expects to take.

Jerome Powell
President of the Federal Reserve
Risk Management

Risk is usually a result of uncertainty. In organizations, this risk may be due to market uncertainty (demand, supply, and stock market), project failure, accidents, natural disasters, and enemy troubles.

They can be categorized as follows

What are the types of risk management?

This means that any business, big or small, will run the risk, some of which could result in serious loss or bankruptcy. But not all large companies have extensive “risk management” departments, and only a handful of small businesses look at such a problem systematically.

In this article, we’ll look at some of the key risks your business may face. If you have strategic risks, compliance risks, operational risk, financial risk, and acceptable risk, then we’ll look at what they mean and how they affect a business.

What are the types of risk management
The types of Risk Management

1. Strategic risk

Everyone knows the need for a comprehensive business plan for a successful business. But a business plan should not always be the same, it should always be a plan that outperforms competitors.

This is a strategic risk. It is the risk that makes your company’s strategy less effective and, as a counterweight, your company can reach its goals. This could be due to technological changes, a strong new competitor entering the market, changes in consumer demand, cost of raw materials, or other large-scale changes.

History is replete with examples of companies facing strategic risk. Some were able to adapt successfully; Others did not.

The best example of this is Kodak, which took such a prominent place in the film engineering market in 1975. When its engineer created a digital camera in 1975, innovation was considered a threat to its core business model and abandoned development.

If Kodak has carefully analyzed strategic risk, one can conclude that someday digital camera technology will pose a threat and challenge to its business, so the Kodak company neglected the strategic risk and the business failed.

However, facing strategic risks do not have to be harmful. Think of it as a single, very successful product paired with Xerox photocopies. Laser printing was a strategic risk for Xerox, but unlike Kodak, it was able to adapt to new technology and change its business model. Laser printing became a multibillion-dollar business for Xerox and the company survived a strategic risk.

2. Compliance risk

Does your business operation according to rules and regulations?

As your business expands, you will find that you must comply with new rules that were not previously applicable. This means you can minimize this risk by always running your business according to the rules.

For example, if you run an organic farm in Canada and sell your products in Canadian grocery stores, you decide to start selling products to Europe.

It sounds great, but there are also significant compliance risks. European countries have their food safety laws, labeling rules, and more. If you set up a European subsidiary to handle all of that, you must comply with local accounting and tax laws. Meeting those additional regulatory requirements can be a significant cost to your business.

Even if your business is not geographically wide, expanding your product portfolio can still pose a new compliance risk. Let’s say your Canada farm starts producing beer in addition to food. Alcohol sales open a new and expensive set of regulations.

Then, as a business, you should run your business to avoid all these compliance risks.

3. Operational risk

So far, we’ve talked about risks from outside parties. In time, your own company is also a source of risk.

Operational risk is an unexpected failure of your company. This could be an operation, a server outage or a technical failure, or it may be due to your personnel or reasons.

For example, if an employee uses the wrong value for a check, the company’s accounting and finances may be in jeopardy.

Sometimes there is more than one cause of operational risk. For example, consider the risk that your employee will pay $ 100,000 instead of $ 10,000 on your check and write the wrong amount on a check. Having a secure payment process can help prevent this, and always reduce this risk by signing up with a manager.


  • Natural disaster,
  • Power cuts
  • An issue with the web hosting company

Anything that disrupts your company’s core operations is classified as operational risk. Operating risks can still have a major impact on your company. Not only will the cost of fixing the problem, but operational problems will prevent you from delivering customer orders or contact you, which could result in loss of revenue and damage to your reputation.

4. Financial risk

Many risk categories have a financial impact. But let’s focus on the financial risk category, especially the potential for the sudden influx of cash and cash flowing into your business.

For example, the risk of delaying a debt that a large profit service provider pays for your business, in which case profits are low. There is a significant financial risk to the business. If the customer is unable to pay or for some reason is late, your business will be in big trouble.

5. Risk of reputation

No matter what business you do, the reputation of the business is worth everything. If your reputation is damaged, you will lose immediate revenue as customers care to do business with you.

This can have an impact on the organization

  • Your employees may feel discouraged and even decide to quit.
  • Hiring good substitutes can be difficult because prospects have heard about your bad reputation and don’t want to join your company.
  • Investors leave the business.
  • Suppliers may start offering you less favorable terms.
  • Advertisers, sponsors or other partners may decide that they no longer want to connect with them.

More attention should be paid to reputation risk as it can have a major impact on the business.

what is the risk management process

A risk process or risk management process is a risk reduction or mitigation by identifying and monitoring risks and controlling them. In the risk process, the risk is defined as a future event that prevents your business from meeting its goals. A risky process can take steps to identify every risk, quantify the impact, prevent it, and minimize the impact if it does occur.

what is the risk management framework

The Risk Management Framework (RMF) is a policy that specifies how the US government should monitor and monitor the security of IT systems. The RMF, originally developed by the Department of Defense (DED), was adopted by other federal information systems in the United States in 2010

Risk Management Framework
Risk Management Framework (RMF)

The RMF is currently maintained by the National Institute of Standards and Technology (NIST) and provides a solid foundation for any system’s data protection strategy.

What is the risk management standard

Risk Management Standards are aimed at ensuring that organizations perform high-quality risk management processes to promote common goals.

The ISO 31000 risk management standards framework includes:

ISO 31000:2009 – Principles and Guidelines on Implementation
ISO/IEC 31010:2009 – Risk Management – Risk Assessment Techniques
ISO Guide 73:2009 – Risk Management – Vocabulary