All businesses face risks irrespective of their scale of operations. Unfortunately, very few business owners and managers are fully aware of the specific risks that they face, and the impact that they could have on their businesses. Risk management aims at helping companies to make smarter decisions when it comes to detecting, monitoring mitigating, and preventing risks.
Although more companies are implementing risk management strategies to shield their operations, a good number of them still make mistakes while at it. As a result, some risk management strategies are punctuated by errors due to the incorporation of bad habits.
Here are some typical risk management mistakes and strategies for avoiding them.
Copying From Others
Each business has a unique modus operandi. When undertaking risk management, some owners attempt to copy strategies implemented by other companies within and beyond their industry. Although such approaches might be tried and tested, it doesn’t automatically mean that they will work for you.
The correct way of implementing a risk management strategy is starting from scratch. Some risk management models might be uncertain. However, once you tailor-make them to suit your operations, you will be able to manage risks that face your business.
When evaluating different risk models that might work for you, it is imperative to choose some “risk factors” that are seemingly important. After that, assess their suitability to your business, and whether they can help you manage your risks. By doing so, you will end up with a risk management strategy that is unique and enables you to avoid disasters.
Failure To Incorporate All Departments
Often business owners and managers think that all risks are IT-related. This isn’t factual bearing in mind that risks are inherent in all aspects of your operational setup. Your business faces different types of risks, including financial, reputational, compliance, legal, and competitive risks.
Therefore, all departments ought to get included in the implementation of your risk management program. You should only leverage the expertise of your company’s IT department to gain key metrics for risk analysis. Similarly, the IT department helps you mine data that you can use to undertake a SWOT analysis when implementing a risk management strategy.
Treating Risk Management As A One-Off Undertaking
Your business might be safe from risks today, but you cannot be too sure about what will happen tomorrow. Risks keep reinventing themselves. Therefore, you should remain on your toes so that you can discover, mitigate, and prevent them from becoming realities.
When you treat risk management as a one-off undertaking, new types of risks will emerge and cripple your operations. A scalable risk management strategy helps you to evaluate risks regularly and address them on time. You should go beyond adherence to annual compliance guidelines by implementing and enforcing a recurrent risk management process.
Failure To Implement A Data-Driven Risk Management Strategy
Today’s corporate world is data-driven. All business decisions that you make should be based on empirical data. This includes the risk management strategy that you put in place. If you think that your in-house cyber-security capabilities can offer adequate protection against cyber threats, you risk falling victim to data breaches.
Having a data-driven risk management approach will help you decide what’s most valuable when rolling out your strategy. Likewise, working with numbers helps you predict risks that might occur in the future, and areas that might be targeted. This way, you can adequately prepare for any eventualities in case the risks become realities.
Setting Unrealistic Expectations
Risk management isn’t a perfect science. You should expect to make mistakes along the way. However, these mistakes shouldn’t overshadow your objective, which is to mitigate and prevent risks that might affect your business operations. In risk management, you should expect to encounter something unknown.
There will always be a forecast that does not pan out as you expected. Likewise, a mitigating factor that you never considered in the first place can emerge. Therefore, you shouldn’t set unrealistic expectations when implementing a risk management strategy. You have to keep in mind that the entire process aims at reducing the likelihood of risks becoming realities, besides mitigating unexpected results.
Rather than setting unexpected goals, you should proactively design your risk management program based on your business needs, the available budget, and risk tolerance capability. Furthermore, facilitate risk conversations rather than setting mandates. This will go a long way in helping implement a scalable and realistic risk management plan.
Regardless of how big your business is, it will always face risks from different directions. Apprising yourself wit developments in the risk management field helps you identify and fix typical mistakes that you would have otherwise committed. As a process, risk management is difficult. Doing it the wrong way could even be worse than sitting back and doing nothing at all. Avoiding typical risk management mistakes helps you implement a strategy that works best for you.