Risk management

Risks are an intrinsic part of life – and of all types of business activity. It is, therefore, not a question of whether a risk management system exists in the company, but of how efficiently the risk management system can deal with risks.

Risk management systems, as described in both German and international standards (e.g. ONR 49000 ff., AS / NZS 4360, ISO 31000, and ISO / IEC 31010) as well as in industry-specific standards (e. g. REACH, WEEE, and Machinery Directive 2006/42/EC), can – if implemented correctly – help to increase the company value. Moreover, they can provide effective and efficient protection of the company’s assets and earning power against loss risks. If this is also your aim, please contact us to discuss the specific design and how to improve your risk management system. We have specified the minimum standards for a risk management system in our self-assessment concept using our web-based tool “SAMS interactive”. Along with your company-specific requirements, you can use these standards together with your employees to design, improve, and finally ensure the implementation of an in-house risk management system.

Increasing importance

Risk management is growing increasingly important, as business is changing faster and becoming more complex. Politicians and legislators have not failed to notice that the requirements placed on a risk management system are also increasing. By setting various standards they hope to reduce the level of uncertainty associated with handling risks. The following factors, for example, can result in changes to a company's area of activity and business environment, possibly leading to greater risks:

  1. Based on the principles and practices of lean management, companies strive to streamline processes and minimize waste. At a time when companies are facing greater risks and having to take greater risks, there is of course the danger of a lack of corresponding processes and resources to manage these risks appropriately.
  2. The networking of companies results in a need for reorganization. The global supply relationships developed across numerous value-added levels mean that the sudden loss of a link in the supply chain may cause the entire system to fail. 

Further, not all of the considerations regarding risk management meet the demands of comprehensive risk management. For example, they cannot be reduced to the question of which insurance is correct. Since the question of whether it is right to transfer risks to insurances from an entrepreneurial perspective is not relevant until the end of the risk management process.

Steps for successful risk management

Since the general aim cannot be to take out insurance, the first stage of our risk management consultancy projects aims to identify, analyze, and evaluate the risks of the respective company in order to detect the entrepreneurial risks and tackle them accordingly.
A second stage involves defining possible alternative courses of action for dealing with the risks, which can be allocated to the following categories:

  • Ignoring the risks: cause-effect relationships and their probability are blocked out in terms of entrepreneurial activities. The company takes little interest in risk strategies or measures to influence operational business risks. This leads to risks remaining undetected until their effect finally forces the management to become aware of the situation.
  • Preventing the risks, e. g., through the development of a different constructive solution.
  • Reducing the risks, e. g., through relevant quality tests carried out by the manufacturer. 
  • Adapting the risks: Entry into various markets is adapted to the respective knowledge about these markets and the available resources for developing them. 
  • Transferring the risks: The effects of activities are transferred to suppliers or insurers, or – if at all possible – to government authorities or the public sector (socialization of risks). 
  • Accepting the risks: No measures are taken, as the possible positive effects and / or their probabilities are deemed negligible in relation to the costs for implementing the measures. 

The alternative courses of action must then be evaluated during a third stage. This basis is used to make a decision about which alternative is suitable while taking the company’s goal into account.
In the fourth and penultimate stage, the selected alternative is finally implemented and its effectiveness guaranteed, before being checked a final time during the last stage.

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.

Winston Churchill (*1874)
British Statesman

Copyright © 2011 Unternehmensberatung Prof. Dr. Matthias Vieth – All rights reserved.
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