Extract
Risk administration and management, beyond simply identifying potential threats, seeks to prioritize and adopt appropriate measures to mitigate their impact. To achieve this, early warning dashboards are used that provide real-time monitoring and clear visualization of the different business risks that endanger the operation and continuity of modern businesses.
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Raising Organizational Resilience Through Enterprise Risk Administration and Management
Risk management stands as a fundamental pillar to ensure the continuity and prosperity of any organization. An effective risk management strategy not only seeks to identify and evaluate possible threats, but also implement preventive measures to anticipate challenges; among them are early warning dashboards, which are monitoring and visualization tools that help modern organizations manage and manage risks in their operations in real time.
These early warning dashboards are designed to deploy immediate, automatic notifications for specific deficiencies with a proactive approach which seeks to facilitate informed decision making and avoid situations that could negatively impact business results.
Types of Business Risks
Business risks refer to the unforeseen events or adverse situations that negatively affect operational processes and/or business continuity. Identifying these specific risks is essential to developing effective early warning and proactive management strategies. Some of the most common risks businesses face include:
Financial Risks
Related to the administration of own and client credit, unforeseen operating expenses and fluctuations in the market and demand; They can be addressed with good financial and tax planning.
Cancellation of credit lines when financing is withdrawn and/or expires.
Bankruptcy when financing cannot be accessed at critical times.
Insolvency when the clients' credit portfolio is not well managed.
Summons from tax authorities when they are considered discrepancies.
Default when financing is not managed well.
Decapitalization when heavy cash investments are made.
Devaluation when there are fluctuations in exchange rates.
Fraud when investments are not adequately validated.
Associated costs when other risks materialize.
Inventory Risks
Mainly related to the supply and storage of products; They can be addressed by developing suppliers, performing receiving inspections, and good inventory management.
Losses when there are no adequate storage conditions, especially for perishable products that expire.
Lack of space when supply and demand are not correctly forecast.
Thefts when there are no adequate inventory control measures.
Obsolescence when products are not sold at the time.
Shortages when replenishments are not requested on time.
Damage when products are not stored properly.
Overinventory when there is overproduction.
Maintenance Risks
Related to the use of machinery, tools and equipment that result in a decrease in their useful life or costly downtime; They can be addressed with preventive and corrective maintenance.
Failures when equipment is configured incorrectly.
Stops when equipment is used inappropriately.
Accidents when equipment becomes defective.
Breakdowns when equipment wears out.
Operational Risks
Related to the way of doing things, and problems and errors in production and quality of products; can be addressed by bringing together best practices from individual methods and having standardized processes.
Inefficiencies when optimal production conditions are not available.
Nonconformities when the product does not meet specifications.
Variations when you give a personal touch to things.
Delays when a product is over-processed.
Human Risks
Related to human nature; can be addressed with training, awareness, incentives and accountability mechanisms.
Misunderstandings when there are only oral instructions and it is understood differently or incorrectly.
Sabotage when acts are carried out with premeditation, with advantage, with treachery or as a form of betrayal.
Power Games when one enters negative psycho-emotional dynamics.
Staff turnover when incentives or commitment are lacking.
Distrust when the data source that is used is not reliable.
Omissions when you lack adequate experience and knowledge.
Carelessness when the urgency of the moment wins.
Forgetfulness when the person is distracted.
Delays when the person procrastinates.
Logistics Risks
Related to the transportation of merchandise and movement of personnel; They can be addressed with tracking and monitoring systems and operations control.
Losses when they are not transported properly.
Thefts when not traveling on safe routes.
Delays when there are problems on the route or adverse weather conditions.
Legal Risks
Related to disputes and disagreements over the terms and conditions of agreements; can be addressed with good legal management.
Litigation when third parties are harmed or intellectual property is violated.
Demands when breaches of contracts and agreements are incurred.
Commercial Risks
Related to social perception and the relationship with the surrounding community; They can be addressed with advertising campaigns and good business management.
Loss of reputation and public trust when scandals or questionable behavior are revealed.
Boycotts and social “cancellation” when controversial business practices are carried out.
Loss of clients when the product or service fails and is not fixed or compensated.
Technological Risks
Related to the hardware and/or software obsolescence, data integrity and availability of technological services; can be addressed with a good information technology management.
Incompatibilities when there is no interoperability and/or backward compatibility.
Intrusions when there are vulnerabilities in network security.
Inconsistencies when the systems are filled incorrectly.
Interruptions when hardware or software fails.
Disconnections when the network fails.
Environmental Risks
Related to environmental conditions, regulatory changes and waste management; They can be addressed with good waste management and contingency analysis.
Shortage when natural resources or critical raw materials are depleted.
Damage when environmental contingencies and natural disasters occur.
Trade restrictions when regulation prevents operation.
Sanctions when environmental regulations are breached.
The identification, evaluation and mitigation risk must be an integral part of the business strategy. By understanding the potential risks facing the business, companies can navigate the complexities and ensure the long-term stability of their operations.
Measuring Risks: How much can it affect us?
Each risk has its own size, like an iceberg in our path. Effective business risk administration and management involves carefully evaluating their magnitude to understand how big and close is that iceberg. Is it a small and distant threat or a potentially catastrophic situation? A commonly used formula to quantify this magnitude of risk is:
Risk Magnitude = Severity x Probability
Severity of Risks
The gravity indicates the level of damage or potential loss associated with the materialization of the risk and is classified as:
Insignificant / Negligible (1): Minimal consequences but could add problems if repeated frequently.
Minor/Trivial (2): Consequences that are easy to manage and resolve in a short period of time.
Moderate / Serious (3): Consequences that will take time to mitigate.
Important / Critical (4): Significant consequences that will cause long-term damage and problems that are difficult to recover.
Catastrophic / Fatal (5): Harmful and impossible to recover consequences.
To determine the impact of each risk we must ask ourselves:
What is the most negative result that could arise as a consequence of this risk?
What are the worst damages that could be suffered?
How difficult will it be to recover from this risk?
Probability of Risks
TheprobabilityIt refers to the possibility of an adverse event occurring and is classified into:
Very unlikely / Remote (1): Occurs under exceptional conditions.
Not likely / Isolated (2): Occurs under unusual conditions.
Possible / Occasional (3): 50/50 chance, may or may not happen.
Probable / Recurrent (4): Will occur regularly at different times.
Very likely / Continuous (5): It will occur with defined periodicity.
To determine the possibility of each risk we must ask ourselves:
Are there similar risks that have occurred in the past?
Is it likely and/or possible that this risk will materialize?
Has this risk occurred before and how often?
Risk Assessment
A realistic evaluation of these variables, supported by relevant and up-to-date information, allows you to determine the magnitude of real risk for the business, using a scale from 1 to 25:
Minimum Risk Magnitude (1-5): They require constant surveillance to avoid inconveniences.
Low Risk Magnitude (6-10): They require attention and correction if they become relevant to the client.
Medium Risk Magnitude (11-15): They need correction so as not to affect the operation of the business.
High Risk Magnitude (16-20): They must be attended to promptly to guarantee the operation of the business.
Serious Risk Magnitude (21-25): They must be addressed immediately, since they put business continuity at risk.
Risk Mitigation
Posteriorly,adopt proportional measures, based on the operational reality and the company's capabilities, guarantee the continuity of operations.
Prevention: For risks with low probability and magnitude, implement preventive measures to further reduce the probability of occurrence. It's like taking a safer route to avoid known storms.
Mitigation: For risks with moderate probability and moderate magnitude, mitigation strategies can reduce both the probability and the impact. It's like preparing our boat with life jackets and repair tools. Although we do not completely avoid risk, we mitigate its impact.
Contingency: For risks with high probability or magnitude, develop robust contingency plans to respond effectively if the risk materializes. If despite our efforts we encounter a storm, we have a contingency plan. We know what to do, where to go and how to keep the boat safe.
Transfer: In some cases, transferring risk through insurance policies or other contractual agreements. It's like hiring a team of navigation experts to take charge of certain aspects of our journey.
With these measures, we ensure that our business journey navigates safely, weathering known and unknown storms.
Risk Presentation: How do we anticipate?
Risk presentation is a key element for the effective anticipation and management of risks, where the use of early warning boards not only serve as visual reminders of potential risks, but also emphasize the importance of proactive management.
These visual representations highlight the identified risks, providing a panoramic view of the current situation. When using intuitive texts, colors, graphics and symbols, these dashboards allow leaders and management teams to quickly understand the status of risks in real time and make agile and informed decisions; thus offering several benefits:
Continuous Awareness: Dashboards serve as constant reminders of risks, maintaining the organization's awareness of potential threats.
Focus on Priorities: By highlighting the most significant risks, dashboards help the company focus on areas that require immediate attention.
Effective communication: They facilitate clear and effective communication by providing an understandable visual representation of the risk situation.
thus achieving not only inform, but also drive action, guide decision making and guide the preventive and corrective strategies necessary to develop a High Performance organization and achieve long-term success for any company.
Early Warning, Effective Action: Building a Safe Path to Business Success
Being a skilled leader involves making smart decisions to keep our ship on course and protect it from possible threats. We evaluate, plan and prepare for any adverse situation, ensuring that even if we encounter rough waves, our trip is as smooth as possible.
In the digital age, risk management emerges as the rudder that guides towards safe and prosperous waters while early warning boards serve as lighthouses that illuminate the path to avoid possible dangers on our journey; creating a synergy that allows companies to not only survive, but thrive in an increasingly dynamic business environment, thus building a resilient and adaptive organizational culture, prepared to face the challenges of tomorrow.
Let us ensure a safe business journey towards a prosperous and successful horizon!
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About Pablo Tellaeche (Author):
Owner and main consultant of TACs Consultores, Speaker and University Professor; seeks to bring a true and positive Lean Culture and Digital Transformation to every company with which he has the pleasure of collaborating.
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