There is a saying “A ship is safe in harbour, but that’s not what ships are for”. Risk is inevitable in everything one does. All types of organizations face with some kind of risks. However, understanding the risks and effectively managing these will greatly help the organizations in achieving the long term success.
Risk can be of many types, be it financial, operational, legal and regulatory, business, liquidity, strategic, reputational etc. Hence, it’s imperative that one understand the environment in which operating business and identify, measure and assess risk accordingly. After proper assessment, one can decide whether to mitigate, to minimise or to retain risks. Reporting and monitoring the risk is the most important element in risk management. One should understand that based upon the current scenario’s, implemented strategies may need to be updated in order to manage the environment in efficient and effective manner. Further, risk governance is something without which it’s not possible to do risk management in efficient way. Proper segregation of duties, assigning risk limits, all falls within risk governance.
Finance is one of the most crucial divisions in business. It’s directly linked with operations. Engage in any business, cost is something which will be incurred and revenue also needs to be generated minimum to the breakeven point in order to run the business smoothly. Almost all risks are somewhere associated with finance.
One prepare checklist in order to ensure accurate financial reporting to stakeholders and/or public at large. Preparation of checklist eliminates the chances of manual error. It also cultivates creativity and one could focus more on enhancing the productivity, not only on maintaining the same. It’s one of the examples to minimise the operational and/or legal & regulatory risk.
Implementation of robotics in finance aids in minimising the operational risk as it results in less manual intervention and also aids in enhancing one’s productivity, however, at the same time, it creates other risks such as need to update the coding based upon the changing scenarios; software update may be required etc.
Various risk management strategies organization prefers to apply to manage risk. One may assess the credit-worthiness of the borrower before sanctioning loan, hence may avoid credit risk. Hedging is a way to ensure against financial risks via taking an offsetting position to one in an asset. Insurance provides the safeguard against uncertainties and risks. In case of project management, one may write a very detailed project charter, with project vision, objectives, scope and deliverables. This way risk can be identified at every stage of the project and will be feasible to manage known risk. Further, contingency planning is the development of alternative plans to response to the occurrence of a risk event. Project managers allocate the contingency budget to each item in the budget based upon risk frequency, hence allows tracking the use of contingency against the risk plan. This approach also allocates the responsibility to manage risk budget to the managers responsible for those line items.
Regulatory bodies also do risk management by implementing rules and regulations for the benefit of public. Volker rule is one of such example. The Volker rule is a federal regulation that generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private-equity funds. Further, Basel II set standards for risk management that need to be followed by all banks and financial institutions.
One may face risk due to outsourcing a major business process. Service level agreements assist in minimising such risk. Further, there is also a risk when combining offshore and local service provider. Offshoring throws up significant additional project management overheads, with risks coming from all directions – political unrest, socio-economic factors, government policies with regard to taxes, duties and other regulations. In addition, one may have to deal with cultural, language and communication issues, security and privacy, knowledge transfer, change management as well as financial viability of the supplier and price inflations.
In 1904, Oliver Wendell Homes Jr a judge of the US Supreme Court said “Taxes are what we pay for a civilised society”, however; tax system has become more complex. Complexity of tax laws and complexity of business transactions are the major factors that affected the level of tax risk that the organization faced. Constant tug of war between the tax payer and tax gatherer is a reality. Litigation heightened the risks inherent in business entity dealing with tax matters.
Today, when entire economy facing health risk due to Coronavirus disease, Stanley Hospital in Chennai, very well managing risk by setting an exemplar on how technology can be put to use in the direst circumstances. Robotic nurses deployed in corona wards, hence limit the direct contact of doctors/nurses with the patients and reduce the risk of infection.
In today’s competitive environment, it’s almost impossible to escape from risk. One needs to take proactive actions to manage risk. Further, it’s a continuous process, it’s not necessary that all actions will result in success, one need to keep track of the progress and make modification as and when necessary.
[Please note that this article is written for academic purpose only. In case of any queries, author can be reached via email [email protected] ]