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5 Things Your Company Needs to Understand about Risk Management

Many companies that are categorised under MSME, are not fully aware of risk management and its process
BY Jaspreet Kaur
Feature Writer, BusinessEx
Jun 03,2020

In today's time, it is crucial to understand the difference between financial risk and enterprise risk. Many companies that are categorised under MSME, are not fully aware of risk management and its process. 

What is Risk Management ?

Risk Management is essentially a process to forecast and calibrate financial risks together by ascertaining the procedures to avert or diminish their impact on the business.

As risk management is still a new thing for medium-sized, and small business units, entrepreneurs should imbibe it and also, rate their knowledge in comprehending it. There are basically 4 types of organisations under the risk management segment. 

1. Naive

Majority of MSME, family-run businesses, individuals and organisations are included in this category. Here, the companies have a fragmented awareness of risk management, thereby, risk management is done in silos. There is invariably a normal structure. 

2. Novice  

In this category, risk management is present but the companies have a bare minimum policy to assess the risk factor. Here, the companies do not take risk management earnestly. Sometimes, they embody risk factors to just please the board of directors and in real, they avoid fixing the emerging problems that erupt in the accounts department or with employees, believing that department heads will resolve them. With this attitude, problems and issues are not executed, as well as resolved, in the right manner.

3. Normal 

 

 

The companies in this category have risk management inherited in every department. Such companies are actually experiencing it and are amalgamating it in daily operations. The risk management is not integrated at an overall enterprise level and thus, it is absent in the system.

The companies that are listed on the sensex invariably have a risk management committee to assess business operations and predict unforeseen business conditions. 

4. Natural 

 

 

Giant companies like Tata Group and Reliance Industries Ltd fall in this category. Such companies have a fully risk aware culture. As a result, the risk is inherited in every process of the organisation.

The five principles of risk management also come from the last quadrant, Natural. These principles are as follows 

  1. Proportionate with size of the organisation

This implies that risk management needs to be equated with the size of a company, thereby, diminutive inheritance if the company is small and enlarged inclusion if the company is large enough.

2. Align with the Companies' Objectives 

 

 

The way risk management will be involved in the business, a company needs to ensure that it does not change or divert its objectives. The risk management process should satisfy and help achieve the company's goals. 

3. Comprehensive 

 

 

While adding a risk management process, a company needs to have a 360 degree approach. Thereby, looking at one risk from maturity point of view and not security point of view. 

4. Embedded

 

 

Risk is embedded in every single function of the business. It is embedded in decision-making, subsidiaries of the business, department and also, companies' vendors. Everyone in the company’s ecosystem is aware of the risk culture of the organisation. 

5. Dynamic 

 

 

A company has to be dynamic if it embeds risk management. Uncertainties in the external environment that has an implication on the business. Thus, the company has to ensure that its risk management system is evolving with time.

MSN messenger, Nokia and Discam are some of the companies that did not change with the time. In opposed to these companies, MSME should be receptive to changes. They should be receptive to new ideas, and critical points in the business. Also, they should embrace suggestions and ideas given by subordinates. 

Thus, companies, who want to grow exponentially, should be open to new ideas, and do not lose foresight. 

 

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