What is risk management?
Risk management is the process of planning, organizing, directing and controlling an organization's human and material resources, in order to minimize or take advantage of the risks and uncertainties about that organization.
Uncertainties represent risks and opportunities, with the potential to destroy or add value. Enterprise risk management software for banks enables managers to effectively address uncertainties, as well as the risks and opportunities associated with them, in order to improve their ability to generate value.
The value is maximized when the organization establishes strategies and objectives to achieve the ideal balance between growth and return on investment goals and the risks associated with them, and to exploit its resources effectively and efficiently in pursuit of the organization's objectives.
Corporate risk management deals with risks and opportunities that affect the creation or preservation of value, being defined as a process conducted in an organization by the board of directors, management and other employees, applied in the establishment of strategies and formulated to identify across the organization potential events, capable of affecting it, and managing risks in order to keep them compatible with the organization's risk appetite and provide reasonable assurance of the achievement of its objectives.
Events can have either a negative or positive impact, or both. Those that generate a negative impact represent risks that can prevent the creation of value or even destroy the existing value. Those with a positive impact can counterbalance those with a negative impact or they can represent opportunities, which in turn represent the possibility of an event occurring and favourably influence the achievement of objectives, supporting the creation or preservation of value.
Main purposes of risk management
Align risk appetite with the adopted strategy - managers assess the organization's risk appetite when analysing strategies, defining the objectives related to them and developing mechanisms to manage these risks.
Strengthen risk response decisions - corporate risk management enables rigor in identifying and selecting alternative responses to risks - How to avoid, reduce, share and accept risks.
Reduce operational surprises and losses - organizations acquire a better ability to identify potential events and establish responses to them, reducing surprises and associated costs or losses.
Identify and manage multiple and cross-enterprise risks - every organization faces a range of risks that can affect different areas of the organization. Corporate risk management enables an effective response to interrelated impacts and, also, integrated responses to the various risks.
Seize opportunities - by considering all potential events, the organization is positioned to proactively identify and seize opportunities.
Optimize capital - obtaining adequate information about risks allows management to conduct an effective assessment of capital needs as a whole and to improve the allocation of that capital.
The role of risk management in business success
Risk management and automated risk assessment isn’t merely done as a preventative measure – it plays a crucial role in making an organization successful. The most basic way it does this is by keeping the business safe. IF a business is not managing its risks then it is not prepared to meet any risks. This means that a risk can end up dealing a fatal blow to the business or completely evaporate its profits by causing a huge financial loss.
Risk management also lets organizations know about new opportunities. When businesses closely study risks, they are more aware of the way the market is moving. Instead of simply protecting themselves, they can exploit the upcoming changes to leapfrog the competition. This wasn’t always possible because risk was previously managed manually. When you are manually managing risks, it is very difficult to get any useful insights out of the risks. It is hard enough to manage the risks alone, to think of getting insights out of them is plain impossible.
This scenario has now changed thanks to risk management technology. There are solutions which take in risk data from inside the organization as well as the external environment of the organization and automatically analyze them. These solutions can detect risks quickly and alert all the stakeholders within the organization. Thus, businesses can use the risk data already present in their risk management framework to determine what the best course of action will be soon. This is also why so many businesses are now investing in risk management technology.
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