Organizations are exposed to a host of different risks. Organizations require risk management to evaluate possible risks so as to avoid expensive mistakes and balance potential gains against potential losses. Organizations benefit most from considering their risks that are likely to impact the business negatively. However, the process of risk management may be characterized by various risks.
Risk management involves the systematic identification and assessment of a firmís risks and taking necessary actions to safeguard against them. Managers are involved in identifying risks and defining the possibility that any future occurrences may result in loss or harm. While risk management can help a business achieve considerable gains, the process is also faced with certain risks. By taking risks, the organization sometimes can achieve considerable benefits. This paper discusses some current risks that organizations face with respect to risk management.
What are some of the current risks organizations face with respect to risk management?
One of the most significant risks with respect to risk management is a determination of the risk likelihood level. It is the task of a risk manager to predict, analyze and put measures to control and prevent occurrences of losses. The risk-management process involves identification of exposures to potential losses, measuring the level of exposures, and determining how to protect the organization from damage. There is a risk that a manager may wrongly determine the risk likelihood level. With the wrong determination of risks, the threat source is sufficiently capable and highly motivated to cause significant losses to the business as controls that may prevent the vulnerability become ineffective. When the source of the threat is capable, controls put in place may hinder a successful risk management process (Lam, 2014).
Another risk in respect to risk management is an incorrect determination of the possibility that the potential vulnerability can be exploited. Different factors are often considered when determining the likelihood of potential vulnerability. Such factors include identifying the source of the threat and the potential of the source. The nature of the vulnerability and the effectiveness of existing controls in mitigating or deterring the vulnerability are also an important factor to consider. Determination of the possibility or potential vulnerability allows for classification of risks into high, medium and low impact. An incorrect determination leads to the wrong classification of risks. The risk of an incorrect determination of the possibility of occurrence is a risk that accompanies the risk management process(McNeil et al., 2015).
Managers also face the risk in respect to identifying the risk's Impact. Determining the impact of threats is an important step in risk management. Managers understand that not all threats will have the same level of impact to an organization. Additionally, every system in an enterprise has a different value from other systems. Thus, systems cannot be evaluated in the same way. For example, n organizationís payroll system is of more value that a system in place to keep the lunchroom menu database. Due to the different value of systems, the occurrence of a risk would have different impacts on organizationís systems. Evaluating the impact of a risk can be done suing qualitative and quantitative manner. Both approaches have advantages and disadvantages that may affect the resulting values(Lam, 2014).
There are benefits and problems to both approaches. Once a risk is measured, the probability of occurrence of each risk can be identified as well as its impact assessment. Organizations often begin by correcting those risks that high impact to organizations. This is because focusing on high risks first, reduces vulnerability to risks that can result in irreparable damage. Also, high likelihood risks also necessitate immediate actions. The failure to correctly identify the impacts of certain risks affects how organizations address such risks. When addressing risks, organizations often start with those risks with high impact and high probability of occurrence. When a high impact risk is identified as a lower impact risk, an organization concentrates on the high impact risks first. Thus, an incorrect evaluation of risks may result in enormous losses to the organization in the case of an occurrence(Kaplan & Mikes, 2012).
There are various risks that organizations face with respect to risk management. These risks stem from risk management process. The first risk in respect to risk management is the incorrect determination of the risk likelihood level. There is a risk that a manager may wrongly determine the risk likelihood level. With the wrong determination of risks, the threat may cause significant losses to the business due to the resulting implementation of ineffective controls. Another risk in respect to risk management is the incorrect determination of the possibility that the potential vulnerability can be exploited. An incorrect determination leads to the wrong classification of risks. Another risk that characterizes the risk management process is the incorrect identification of risk Impact. Some risks are more important to risk managers. Thus, determining their importance and occurrence is important in identifying risk mitigation strategies. The failure to correctly identify the impacts of certain risks affects how organizations address such risks.
Kaplan, R. S., & Mikes, A. (2012). Managing risks: a new framework.
Lam, J. (2014). Enterprise risk management: from incentives to controls. John Wiley & Sons.
McNeil, A. J., Frey, R., & Embrechts, P. (2015). Quantitative risk management: Concepts, techniques and tools. Princeton university press.