Risk is the effect of uncertainty on objectives
In the 1500's the German word Rysigo meant to "to dare, to undertake, enterprise, hope for economic success”
The reality is that the world is full of uncertainty. Simply, it makes good business sense to approach day-to-day operations and future planning decisions with this in mind. Risk management in this article refers to a business' structured response to uncertainty. Importantly, each business is different in size, resources and operations, meaning a catch all risk management plan cannot exist. Everything you find here is a guide only. If you would like more tailored support, please contact us.
There is a lot to think about when trying to understand a businesses relationship with uncertainty. In order to begin, three broad categories can be used: risks that can be prevented, risks that cannot be prevented, and risk that businesses need in order to achieve their core goals.
There are many questions to ask in order to identify risks:
What does risk look like?
How likely is it to happen?
What are the consequences?
What can I do to prevent it from happening?
What can I do if it does happen?
What should I do first?
Getting comfortable with risk can be daunting. These questions are meant to raise many more questions than answers. The resources available on this website are designed to help you build your own risk profile by breaking down the questions in a structured and logical way. In order to see the challenges and opportunities you face. This process helps establish businesses risk tolerance. Risk tolerance is the amount of risk a business is able to withstand, without putting the business in an uncomfortable position. Once risks have been identified, a business can:
recognise the warning signs of challenges ahead
take action to prevent the risk from happening. Taking action before something unexpected happens, is much less costly than reparations. Some risks can have consequences that are too costly to repair
prepare for events that can't be prevented, but whose effect can be minimise
Prevention and harm minimisation transforms a spur of the moment reaction, into a proactive, purposeful plan of action.
Organisations make money by taking risk, and lose money by not effectively managing risk.
In early 2018, an international aid organisation was accused of covering up sexual exploitation allegations against its workers whilst deployed. Throughout 2018, the organisation has faced scrutiny and further allegations. In February, they reported to have lost more than 7000 regular donors, and more than 50 million pounds in funding from the U.K. government and European Commission was in question. The organisation has lost notable ambassadors across the world, as well as the resignation of the chief executive, and a country director. The damage to their reputation is immeasurable. Most importantly, the organisation has damaged the lives of those it promised to assist.
The organisation failed to manage the risks of operating in the conditions that it does. It also failed to address the issue in a timely matter and in a way that protects the people it comes into contact with, as well as its own objectives. This failure is seen as a breach of trust that has put the organisation in jeopardy, and has seriously diminished its ability to deliver on its social impact goals.
An enterprise needs to find a suitable balance between negative risk and value creating risk.
It is unhelpful to obsess over negative risk, as uncertainty cannot be avoided, and can be a distraction from possible opportunities. On the other hand, it is necessary that businesses are well informed and not apathetic towards decisions that are inherently risky.
The balance of negative and positive risk is dependent on a business's risk appetite. The risk appetite of a business must reflect the risk tolerance, its core purpose and values and the preferences of the stakeholders in that business. There are many things to consider when determining your risk appetite, but it starts with determining the current exposure to uncertainty, and what the business is willing to do to achieve its goals.
'Risk-readiness' allows businesses to recognise opportunities, as conditions change, and as they present themselves. When you understand uncertainty, you can recognise opportunity.
Our tools are made to be accessible and thorough vehicles with which organisations can begin to understand risk as it applies to their enterprise in a systematic way. Before embarking on risk management, and making decisions about how to handle uncertainties, please use our tools to understand and measure risk.
Risk management is a process, that infiltrates all levels of the business - anyone who wants the business to succeed needs to be involved.
Impact Risk Management
For enterprise with social impact goals, risk management can be divided into two categories that aren't always clear cut. Business risk management, and impact risk management.
For risk management to take place, a social enterprise must start with its social impact goals. In the same way that business risk management maximises the business' capacity to reach its objectives, a social enterprise must do the same. On a daily basis they must operate in tension between financial and social goals that are not easily reconcilable.
A social business must have clearly defined social impact goals, that it can assess in light of the uncertainties it faces. The importance of measurable social impact goals shouldn't be underestimated, as measurability ensures that the effect of uncertain events can be properly measured and compared. Without proper tools to measure social impact, impact risk management is not much use.
Please browse our articles below for more information.