In life, everything does not go according to plan. Long-time customers go to competition. In principle, risk management is the ongoing analysis and assessment of events. During the first half of the 20th century, risk management was often limited to underwriting insurance policies against accidents, natural disasters, and so on. In the 1950s, faced with insurance policies perceived as very expensive and incomplete (many risks are not insurable), many companies have rebelled. They have turned to self-insurance, trying to limit their risks and accumulating enough cash to cover the damage themselves in the event of a problem. There comes the use of the process of risk management now.
In the early 1970s, the end of convertibility of the US dollar into gold and the adoption of floating exchange rates increased financial fluctuations, helping to make risk management an essential tool for large companies. She has not stopped catching since.
Eliminate partitioning
Integrated Risk Management, or Enterprise Risk Management (ERM), was introduced in the 1990s. It was also at this time that the first Risk Manager positions were created.
This shifts from a control-only function to a governance and decision support function. The goal is clear, if not easy to achieve: enable the company to maintain a balance between risk and return. “It’s really a strategic tool that we give ourselves to be able to achieve our objectives. Along with that the use of the small business growth strategy happens to be a very important part.
This global vision is all the more crucial because the risks can be related to one another or have consequences on several levels. If the price of materials you use [for production] climbs sharply during the year when one of your plants undergoes a major fire, the effect will be increased tenfold.
- Corporate Risk Management is primarily distinguished from operational management. In fact, Corporate Risk Management covers the gaps between the company’s strategy and operational risk management.
- Diagram. Shows that Corporate Risk Management covers the gap between strategic and operational risk management
The Corporate Risk Management
Corporate Risk Management is responsible for analyzing, evaluating and managing all business risks that may arise in the areas of management, organization, market, environment, business procedures, finances, personnel, IT, etc. In addition, it focuses on the smooth running of the business strategy. Typically, a Top-Down approach is used, the worst-case scenario is analyzed and a risk profile is established. The small business consulting companies can help you out there.
Operational risk management enables the risk potential of the company and its business processes to be analyzed in a systematic and permanent way. Each risk therefore has its importance. In this way, the risk management process should be seen as a control loop through which the results of operational management are integrated with the objectives of strategic management.
