Risk Analysis and Management in A Nutshell
Risk management is a significant process to identify, assess and control threats expected to impact an organization’s growth and earnings. Amid the pandemic, the application of adequate risk management models has become imperative. In fact, many traditional models have failed to adopt to the volatile changes. Now the emphasis is largely laid on the use of Artificial Intelligence and advance analytics to strategically handle macroeconomic risks. Risk leaders play an integral role in carving organizational path to success especially amidst volatile times in aligning these risk management models with the organizational goals and values.
The economic disruption can be well managed by “automated analytics”. The modelling comes with challenges and complexities that may evolve over time. Increasing digitization can assist identifying- preventable risks, strategy risks and external risks. This further leads to opting for measures like risk avoidance, risk reduction, risk sharing and risk retaining. Though the decision makers rely on technological integration as a shift from traditional model, regulatory requirements can always remain a challenge.
The interesting aspect here is that just drafting the rules and regulations for risk management can only facilitate risk reduction to a certain extent but only the setting up of “rule-book” will not be able to avoid major disruptions like financial recession of 2007-08 due to sub-prime mortgage crisis1.
Inclusion of qualitative factors is very important, especially for strategy risks. Inclusion of all key factors must be crucial for business leaders while avoiding the assumption that probability of reducing all risks can be influenced. Scenario planning, war-gaming and economic moat analysis can be effectively applied for risk management in collaboration with SWOT and PESTLE factors2.
These risk leaders play an active role in facilitating the growth of business through thoughtful measures involving “intelligent risk taking” or reacting once the adversity arrives.
1 The Sub-Prime Mortgage crisis that took place in the US from the year 2007 and carried on to 2010, led to a global financial crisis. It was the consequence of the burst the real-estate bubble that set out a domino effect leading to foreclosure of properties, homeowners failing to pay for their mortgages and devaluation of the properties in the market, including securities, among other issues.
2 SWOT and PESTLE are basic & essential risk analysis models used by businesses to internally assess and manage potential risk. These models are generally applied and integrated from the time when businesses are newly established, often prior to launch of a new business, to calculate odd and take informed decisions since start-ups have little room for error. Having said that, these models are regularly used to assess and prepare for challenging situations by almost all businesses.
Risk analysis and management is an imperative part of the business world, irrespective of the scale and sector. Therefore, it makes for an important subject for those pursuing education or a career in business, to major in. Westford University College understands and offers a specialized course in Finance and Risk Management in the form of a Postgraduate Diploma, for those who wish to acquire core knowledge or improve their expertise in risk analysis and management.
