Do you know the area of risk management? As well as the strategic, financial and administrative areas, for example, risk management is an area that needs a lot of attention and care within an organization.
But what do you mean, does my company have risks?
Yes, your company has risks, just like all others. Risks exist in any company, justifying the importance of having a risk management area in organizations.
Do you want to understand more about the subject and see how risk management is important and can be easily applied in your company? Then continue reading this content that Actio has prepared for you.
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How to define risks?
Risks, in its literal meaning, is the possibility of something going wrong, that is, we can consider as risks, those unexpected events or not, that occur outside of planning.
With that in mind, it is now possible to better understand why risks are present everywhere and in all organizations. Bringing this vision to the business world, we can mention some very common risks, with which you and your organization deal daily, but probably do not classify them as such.
1- Financial crises;
2- Breakdown of machinery, which delays production and may lead to loss of contracts;
3- Lack of raw material;
4- Lack of energy;
5- Structural damage.
These are just some examples of risks that a company can have and it is necessary to understand and accept that they are part of any business. We can consider these two words almost as synonyms, no matter how great the structure is, its brand or how good its service is.
The important thing is that organizations are aware that risks exist and will always exist. What will make a difference is the way it deals with risk and this is where the central theme of this content comes in, risk management, which provides the necessary tools to solve and/or minimize problems.
But what is risk management?
As we said, risks are those unexpected events that can bring some kind of damage to the organization. Risk management is the set of good practices and methodologies that help manage and control these issues.
By applying these methodologies, the company manages to organize itself in relation to these problems, planning and using material and human resources to solve them. In this way, the company is able to prepare for and even address these potential threats. For this, it is necessary to plan and use tools, digital or otherwise, to minimize, resolve or treat risks.
Basically, it is possible to develop risk management on two fronts: preventive, which seeks to anticipate risks, and prescriptive, which deals with risks that occur unexpectedly. Constant monitoring, in addition to obviously serving to prevent and resolve risks, develops the ability to respond dynamically to unexpected events and uncertain scenarios.
This is directly related, including, with globalization and the constant evolution of the world and society. If the world, society and people change, the risks inherent in them also evolve and change. Hence the importance of constant monitoring of risks, after all, actions taken that were effective at a given time may not be effective at others. It is necessary to develop and evaluate the solutions according to the risks, their evolution and the moment in which they are found.
It is important to point out that the function of risk management is not to look for a culprit or justifications for a problem, but to find solutions that avoid greater and negative consequences for that situation.
What types of risks can be managed?
Risks are uncertainties and problems that can arise at any time in the organization. They can be operational, financial, managerial, due to human error and even bad luck, after all, there are things that are really difficult to predict.
Among the most common risks in companies that can be managed, we can highlight:
1- Accidents at work;
2- Court lawsuits;
3- Environmental accident;
4- Brand reputation;
5- Financial fraud;
6- Loss of employees;
7- Increase in product/raw material costs.
It is worth noting that there are many other risks and they vary according to the reality and segment of each company. Therefore, it is important for companies to monitor the imminent risks to their reality and apply actions to mitigate them.
What are the stages of risk management?
Like any methodology, risk management also suggests that some steps are followed. Let’s talk a little about each one of them, which can basically be divided into 5 steps.
Step 1 – Organization
Here, in the first place, it is necessary to know the company in depth, its reality, the context and the place where it operates. This is the main element of efficient risk management, after all, the more you know your business, the easier it is to define the risks inherent to it. It is even necessary to use the risk matrix to be able to identify risks more effectively. To do this, start by defining a sector or employee responsible for this management. In addition to having a centralized function to facilitate access to information when necessary, the company is also able to direct investments towards training professionals, aiming to increase the quality and efficiency of the sector.
Step 2 – Identification
To plan solutions, mitigate and address risks, you first need to identify them. Therefore, carry out a deep analysis to identify which risks must be managed, without prejudice and fear of encountering them.
Step 3 – Measurement
Now that the risks have been identified, it’s time to define priorities and measure which ones should receive more attention and which ones can be mitigated in a second moment. To do this, calculate the probability of the risk materializing, the impact it can cause and carry out quantitative and qualitative analyzes of damage.
Step 4 – Solution
With the risks and their severity in hand, it’s time to start planning solutions to avoid and/or reduce the risks and consequences. With correct management, it is even possible to turn your risks into opportunities. Having a centralized and specialized team to develop these solutions is fundamental to guarantee the efficiency of the sector.
Step 5 – Monitoring
This is the moment of greatest attention. We have a habit of being inattentive after solving problems, as if they couldn’t happen again. And this is where the danger of risk management lies. As much as the risks were momentarily solved, they can reappear.
In addition, it is important to check whether there were residual risks or whether new risks may arise, making sure that the actions planned by the team had the expected result. Therefore, when we talk about risk management, monitoring must be the key word.
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What tools can I use to manage risk?
Risk management is not as difficult as you think or it might seem. In fact, there are methodologies and tools that make this process much easier and more intuitive. In this topic, we’re going to talk about it, so you can start applying risk management tools in your company. Shall we meet each one of them?
PFMEA – Process Failure Mode and Effective Analysis
Did you find the name difficult? Calm down, let us explain. It is a methodology that helps to identify failures in products or processes. It basically takes place in 4 stages: identification, analysis, generation of risk priority and solution.
The secret of this methodology lies in the analysis phase, in which the diagnosis of the severity of the problem (G), the probability of occurrence (O) and the possibility of detecting the failure (D) are performed, with scores from 1 to 10, with 1 higher probability of risk happening and 10 smaller.
Therefore, in the priority generation phase, the formula G x O x D = RPN, or risk priority number, is applied. It can be applied to different products, processes and sectors of a company.
And if…? That’s right, with this tool you can let your imagination run free (but be careful not to overdo it) and imagine scenarios and possibilities that could affect the company.
This tool works based on questions you ask yourself in everyday life without even realizing it, how and if this or that happens? To bring you into the business universe, we’ve separated some questions that can help you get started:
What if the raw material runs out?
Imagine if a new tax comes up?
What if a piece of equipment breaks?
With these and other questions asked, the risk management team is able to analyze and create solutions or mitigation ways in case these situations happen.
The GUT matrix is an acronym for Severity, Urgency and Trend. Its purpose is to help the management team to define the priorities, measures and solutions that must be taken to prevent the risk in question from happening and becoming even more complicated.
For this, the first step is to list in a spreadsheet the possible risks that may affect the company and then create three columns that will contain each of the items that must be evaluated, the GUT.
Once this is done, you will number them from 1 to 5, with 1 being the most serious and which should be prioritized, and 5 the least serious and which can wait to be resolved. To help you better understand how this system works, check out the image below.
In the end, it is necessary to multiply the grades given to arrive at a result and, based on them, the team will be able to better visualize what should be prioritized and what can wait to be solved.
It is a tool that helps to more efficiently identify and visualize the risks that an organization may face. With it, it is much easier and didactic to understand which risks are serious and which are milder, helping when it comes to listing priorities for defining strategies and action plans.
Basically, it is a table where the probability is on the vertical axis and the impact on the horizontal axis. By feeding this table, it is possible to visualize the main risks
This is a strategic analysis tool widely used in the market. With it, it is possible to analyze the strengths, weaknesses, opportunities and threats with the help of a framework.
It is a very important and essential method not only in risk management, but also in the preparation of strategic business planning, and can be applied to process, products or services.
With each of the strengths, weaknesses, opportunities and threats listed, it is time for the risk management team to start developing strategies to ensure that the positive points continue to show the expected result and that the negative points can be mitigated and perhaps even solved.
Preliminary Risk Analysis
Also known as APR, the Preliminary Risk Analysis has a foundation very similar to the GUT Matrix. It is simple, very practical and predicts business risks and the possibility that they will happen.
Just list all the possible and imaginable risks that could happen, their causes, and assign a score from 1 to 3. The higher the score the risk receives, the more likely it is to happen. That way, it will be easier to know which one you should prioritize.
These are just a few of the many risk management tools and methodologies that exist. As you can see, they start from the same assumption, identification, analysis and definition of priority for each of the risks, in order to create strategies to solve or mitigate them.
In risk management, constant monitoring is the secret and, with these and other tools in hand, it becomes much easier to accomplish this task. Contrary to what you might imagine, the monitoring phase does not have to be difficult or complex. It can even be automated by software such as Belt by Actio, the risk management software approved by Falconi, which makes these and other tools available to companies in an automated way.
Why should companies invest in risk management?
In addition to the individual goals of each organization, a common goal for companies is growth. And to grow, it is necessary, regardless of the size of the company, to have a well-defined strategic plan, as well as a risk management plan.
Financial risk prevention
Financial risks are the most present in companies, and can be responsible for crises, increase in taxes and fees, low profitability, are some of the problems that companies face. Risk management does not prevent these problems from happening, but it leaves your company prepared to face these adversities.
The lack of this preparation, whether in the product or service, can cause irreversible damage, and may even lead the company to bankruptcy.
Optimized processes and resources
When a risk materializes and the company has no contingency plan or solution, the tendency is for operational processes and resources to be affected and weakened, making the situation even worse. With risk planning, in addition to being able to identify problems in advance, resource management will be done more efficiently and processes will be safer and more assertive.
We know that profit is extremely important for companies. Dealing with risks after they have been implemented generates costs and losses. When this happens, we can even classify them as damage.
Risks, when monitored and controlled, may not become a problem and if they do, the company will be organized and prepared to face them, from resource allocation to possible financial write-offs. The important thing is that she will not be caught off guard with emergencies and unplanned spending.
Standards to assist in risk management
Just as there are the famous quality standards, such as ISO 9001 or GMP (Good Manufacturing Practices), there are also standards and certifications that guarantee the efficiency of management processes, including risk management.
And why should your company be concerned about being in line with these standards?
These certifications and standards, often international, guarantee quality not only in competitions in the national market, but ensure quality globally. That is, for a company that wants to grow, prosper and guarantee the quality of products and processes beyond the traditional, these regulations are essential.
The ISO (International Organization for Standardization) has standards recognized around the world that seek to ensure the quality of processes, products and services.
ISO 31000 is one of the most important standards for risk management. It seeks to improve the operational efficiency of the business, make decision-making more assertive and, of course, prevent risks.
Some of the main steps that must be followed for this standard are the identification, classification, evaluation and treatment of risks. In other words, as mentioned above, its application is very similar and based on the various risk management tools and methodologies discussed above.
Created in 1992, COSO, an acronym for Committee of Sponsoring Organizations of the Treadway Commission, is a guide to guide companies towards the best internal practices to prevent fraud.
In practice, it is an internal control process that aims to reduce risks and increase the chance of achieving objectives.
Project Management Institute where it is possible to obtain certificates that attest to the level of knowledge of professionals in their respective areas.
In all, there are six types of certifications recognized worldwide for project managers who want to consolidate their skills. This specialized association created the PMBOK, which is a guide with best practices for project management.
The importance of process automation in risk management
Now that you already know what risk management is, its importance, stages, methodologies and even its regulations, imagine managing and supervising all of this manually?
We can even say that this is possible, but not effective. The chances of errors and, mainly, human failures are very high. When it comes to risks, which are already unexpected and dangerous for the universe of your organization, we cannot risk even more.
So, if we look at it from another perspective, we realize more and more that time is money. Organizations value efficiency, agility, innovation and technology. It makes no sense to delegate an entire team to perform a task that can be done in an automated way. More than that, isn’t it better to use this team and this resource to find solutions, acting on the strategic part and not on the operational part?
Doing this whole risk management process manually, the chance that it will be inefficient is very high. Among the disadvantages we can mention:
Absence of constant monitoring;
1- Lack of standardization in data and processes;
2- Waste of time with manual analysis;
3- High cost;
4- Low effectiveness.
It was thinking about creating a safe, automated, standardized and conducive environment for assertive and more efficient decision-making that Actio developed Belt, a risk management software.
With a simple, intuitive and automated tool, we bring together all the necessary solutions to manage your organization’s risks in one place. Standardized data and processes, high efficiency, real-time monitoring, productivity gains and cost reductions, all of this is within reach of those who use Belt by Actio.
You and your team will have access to detailed reports to be able to monitor risks more efficiently, identifying, prioritizing and creating data-based mitigation plans. In addition, Belt offers an interface that facilitates the visualization of the whole and has tools such as:
– Risk Matrix;
– Mitigation Plan;
– Process Risk Matrix;
– Follow-up of actions;
– Pending management;
– Centralized communication;
In a single place, it is possible to ensure that your company is protected or prepared to face its main threats, adversities and risks. We like to think that risks will always exist, what will make the difference is the way you and your organization deal with them. This new solution developed by Actio will change once and for all your relationship with threats and the way you create solutions.
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