To succeed in business, you need the confidence to make serious decisions that’ll have a direct impact on your current and future business undertakings without jeopardizing your investment. This calls for effective risk management strategies to help you identify, analyze, and respond to all risk factors.
But to develop useful risk strategies for your business, you have to understand the concept of risk management in its totality. So, what is risk management, and what are the most practical risk management strategies for international trade? Who owns risk management strategies in an organization?
What Is Risk Management?
Risk management is the process of identifying, evaluating, and responding to risk factors in your business. This process enables you to control the consequences of your business decisions and actions by taking proactive rather than reactive steps.
In short, risk management allows you to mitigate potential risks and their effect on your business. For this to happen, you need to come up with several workable risk management strategies for your business.
So, start by learning how to develop a risk management strategy for your business. Some of the main risks you’ll encounter in your international business include foreign exchange risks, credit risks, intellectual property risks, shipping risks, and ethics risks. Once you understand the potential risks in your business, the next step is to develop effective risk management approaches. Here are the key risk management strategies in global trade:
Avoidance
As a business risk management strategy, avoidance means not engaging in risky business activities. It involves assessing the likelihood of experiencing the risk and deciding to forgo the risk-related business activity.
For example, you can decide not to manufacture a certain product that is likely to pollute the environment and land you in court. Through risk evaluation, you might discover that the product will cost you a significant amount of money to prevent or clean up environmental pollution.
Retention
The retention strategy involves acknowledging and accepting risk as part of the business undertaking. This risk is considered the cost of offsetting a larger risk. For instance, an insurance company can decide to retain a risk if it considers the cost of risk retention less than that of insuring against the risk.
Sharing
The risk-sharing strategy is usually applied using employer-based benefits. For instance, if you have employees contributing to insurance benefits, you can offer to pay part of the insurance premium with your employees. With more people participating in the risky undertaking, the cost of the premium shrinks proportionately.
Transferring
The risk transfer strategy involves transferring the risk to a third party. For example, you can implement this strategy by insuring your international business–your insurer will assume the cost and responsibility of the risk. You can also implement this strategy by contracting out your business activities to another company.
Who Owns Risk Management Strategies?
The responsibility of developing the above-mentioned risk management strategies depends on the nature and structure of your business. Some organizations give this responsibility to the risk management committee, while others delegate it to an audit team. This work can also be done by a project manager, a risk specialist, or an external risk management consultant.
Because this is a huge responsibility that is directly linked to the success and failure of your international investment, ensure that the role of developing risk management strategies is assigned to those who are more skilled in risk management. The person you entrust with this responsibility must be able to identify and effectively evaluate risks and reduce missteps to help your company to save valuable resources.
If a team or a committee owns your risk management strategies, you need to clarify the decision-makers and other members of the team. The team leaders and their members should be conversant with the integrated risk management tools and programs in your company. These tools are important in facilitating teamwork and discernibility of the risk to enhance the usefulness of risk management strategies.
In short, the ownership of risk management strategies in a business lies with the key stakeholders, such as senior managers, department heads, and compliance officers. If your business involves project management, your project manager should work with other members of the team to develop and manage a risk management strategy.
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