The process of identifying risks, assessing risks and developing strategies to manage risks is known as risk management. A risk management plan and a business impact analysis are important parts of your business continuity plan. By understanding potential risks to your business and finding ways to minimize their impacts, you will help your business recover quickly if an incident occurs.
Types of risk vary from business to business, but preparing a risk management plan involves a common process. Your risk management plan should detail your strategy for dealing with risks specific to your business.
It’s important to allocate some time, budget and resources for preparing a risk management plan and a business impact analysis. This will help you meet your legal obligations for providing a safe workplace and can reduce the likelihood of an incident negatively impacting on your business.
Internal Vs. External Risk Analysis
There are two broad forms of risk: internal and external. External risks are those that originate outside of the firm and include economic trends, government regulation, competition in the market and consumer taste changes. Internal, or firm-specific, risks include Employee Performance, procedural failure, and faulty or insufficient infrastructure.
External risk assessment is almost always data-heavy. Since most external risks are systemic to an economic system – and therefore outside of the control of the company – forecasts cannot be adjusted based on different corporate governance decisions.
The external assessment begins by categorizing potential risks. Some scales are nominal, and some are ordinal. Companies prefer nominal categories because they are easier to manipulate and compare. Quantitative techniques, such as bench marking or probabilistic modeling, adapt to new data as it arrives. Companies can then track relevant indicators and create thresholds of acceptable risk for a given project.
Internal risks under far more specific and controllable processes. Companies use operational risk assessment for risk of loss from inadequate business decisions. Compliance risk assessment is crucial, particularly in tightly controlled industries, such as banking or agriculture. Internal audit risks must be assessed, particularly for publicly traded companies.
Modern companies assess internal risks by considering likelihood and impact to specific objectives; it wasn’t that long ago that companies simply operated on industry-standard practices.