Definition of a Risk Management Strategy
The phenomenon of a Risk Management Strategy (RMS) can be defined as a combination of the Risk Management (RM) tools and activities aimed at creating a safe environment in which a firm may function.
Risk Management Strategy: Crucial Objectives
Apart from addressing the threats faced by an organization or a project, RMSs are also supposed to mitigate risks. As simple as it may sound, the identified goal requires a careful analysis of the environment in which the company or the project is set so that further progress could become a possibility.
Types of Risk Management Strategies
There are countless ways in which a certain risk may be approached based on external and internal (company-related) factors. Nonetheless, based on the understanding of a risk as a phenomenon, the existing RMSs can be split into the following categories: acceptance, avoidance, limitation, and transference (Snedaker 341-342).
In the case where a company has a limited amount of resources, a risk acceptance strategy is used. It implies that after the company faces the problem, it counts the losses and continues its operations.
Striving to avoid any risks, as far as possible, is another approach. It might seem futile, given the vast number of threats to which a company is exposed in the environment of the global economy, yet this approach can be employed once the firm is comfortable with using all of its resources to mitigate risks.
Traditionally used in the modern business environment, risk limitation implies that threats to the project’s or the company’s existence should be reduced. In other words, risk limitation is where the acceptance strategy meets the avoidance approach.
In the identified framework, the risks are transferred to a third party that has agreed to manage them. Using outsourcing, numerous organizations provide risk transference services. As a result, both parties remain satisfied (Guide to Risk Assessment & Response 14-15).
Crucial Components of a Risk Management Strategy
Although, as established above, there is a variety of RMSs, most of them tend to include the same elements. For example, a typical RMS includes:
- Risk identification.
- Risk analysis.
- Measurement tools.
- Tools for risk monitoring.
It should be borne in mind, though, that the methods used to link these elements and create a cohesive RMS vary significantly. For instance, the tools used to measure the extent to which the risks pose a threat to the organization’s existence vary depending on the perspective (i.e., either qualitative or quantitative). Traditionally, RMS measurement tools include different types of simulations. Once a model that represents a specific situation is built, an appropriate RMS can be designed.
Development of Risk Management Strategy
When designing a risk management strategy, one must consider carefully both the internal and external factors that may affect the organization or the intended project. The internal issues may be assessed with the help of the SWOT tool, whereas the external ones can be reviewed with the help of the PESTLE framework (Visconti 123). In the process, a model of relationships between the company, its stakeholders, competitors, and other relevant parties, is designed.
Implementation of Risk Management Strategy
When deploying the RMS in an organization, one must bear in mind that the implementation process will require an integrated framework for monitoring the essential processes closely and detecting any possible threats, with a close focus on continuity. Furthermore, the company may need to look at the inventory that the managers have at their disposal (Polland 6-10).
An Example of a Risk Management Strategy
An RMS cannot exist without a context in which it can be placed. Although risks can be categorized easily, especially as far as the management of a for-profit organization is concerned (e.g., financial, operational, environmental, strategic, and legal risk factors), the array of viewpoints from which they can be approached is truly numerous and varied. Furthermore, when creating an efficient RMS, one must bear in mind that it typically has to help address not one risk, but a conundrum of threats that a firm may face in the context of a particular market (Mitchell and Harris 3).
An example of a scenario in which RMS could be applied would be addressing the issues that a firm may face when designing its supply chain. As stressed above, the identified problem will require handling several types of threats, e.g., legal, financial, operational, and economic. Seeing that a timely retrieval and a quick analysis of the relevant information are crucial to the design of an appropriate strategy, it becomes necessary to consider the updating of the current data management tools as the first step toward handling the risks. As soon as the crucial data about competitors, the target market, and the customers’ demands are retrieved, the threats to the company’s successful supply chain management need to be identified.
Typically, the SCM-related risks are also linked to information management, cyberattacks, data loss or theft, and more. Afterward, the strategies for mitigating the risks need to be identified. For example, using the company’s financial resources to remove the loopholes in the firm’s data security system and the creation of training courses for the staff to acquire IT-related competencies will be implemented. Finally, the monitoring stage will imply establishing tighter control over the processes involving messages transfer and other types of data processing. As a result, the risks to a supply chain can be mitigated successfully (Hoejmose, Brammer, and Millington 591).
To create a successful RM approach, one will have to focus on a detailed analysis of the crucial factors that amount to a certain risk. Therefore, each RMS is unique and only works impeccably once applied to a specific organization or project and in a specific setting. That being said, one must admit that RMSs have a common structure and pattern of application. For instance, all RMSs typically involve a location of the essential risk factors, be it an internal threat, external, or both, the assessment of the organization’s assets, and the further design of the RM approach with the help of the tools at hand.
To make an RMS work, one will have to align it with the values and principles according to the way the specific organization that the strategy is designed for operates. Therefore, it is strongly suggested that an RMS should have a certain continuity that will help it exist in the environment of a certain organization for a set period. As long as a possible clash between RM choices and the organizational values is prevented, a successful application of the RMS becomes a possibility.
Guide to Risk Assessment & Response. 2014. Web.
Hoejmose, Stefan, Stephen Brammer, and Andrew Millington. “An Empirical Examination of the Relationship Between Business Strategy and Socially Responsible Supply Chain Management.” International Journal of Operations & Production Management 33.5 (2013): 589-621. ResearchGate. Web.
Mitchell, Tom, and Katie Harris. Resilience: A Risk Management Approach. 2012. Web.
Polland, Simon. Risk Governance: An Implementation Guide for Water Utilities WaterRF 4363. Web.
Snedaker, Susan. Business Continuity and Disaster Recovery Planning for IT Professionals. New York, NY: Newnes, 2013. Print.
Visconti, Roberto Moro. “Healthcare Public-Private Partnerships in Italy: Assessing Risk Sharing and Governance Issues with PESTLE and SWOT Analysis.” Corporate Ownership & Control 13.4 (2012): 122-131. ResearchGate. Web.