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RISK MANAGEMENT IN BUSINESS - A NECESSITY AND MODERN METHODS


WHAT IS RISK MANAGEMENT

Many entrepreneurs unfortunately neglect such an aspect of enterprise strategic management as risk management. As a result, they may incur significant financial and reputational losses that could have been avoided by conducting systematic work in this direction.

Enterprise risk management is a systematic approach to identifying, assessing, monitoring, and reducing risks that may impact the achievement of organizational goals. It is a crucial aspect of strategic management as it helps businesses adapt to uncertainty and ensure resilience in unstable conditions.


MAIN TYPES OF RISKS

In general, the entire spectrum of risks that an enterprise may face is conventionally classified into the following types:

• Strategic risks:
  
  • Incorrect strategic planning
  • New competitors or technological trends
  • Changes in market conditions

• Operational risks:
  
  • Technological failures and issues
  • Supply chain problems
  • Errors in resource management

• Legal risks:
  
  • Changes in legislation and regulation
  • Lawsuits and legal conflicts

• Tax risks:
  
  • Errors in accounting and taxes
  • Audits, penalties, legal resolution of disputes

• Financial risks:
  
  • Changes in exchange rates
  • Inflation
  • Credit risks and non-repayment of debts

• Social and reputational risks:
  
  • Marketing mistakes
  • "Black" PR

• Natural risks:
  
  • Natural disasters and force majeure
  • Climate changes, crop failures

• Innovative risks:
  
  • Technological obsolescence
  • Competition in the innovation space

• Medical risks and pandemics:
  
  • Health damage due to safety breaches
  • Risks related to the health of key employees
  • Changes in consumer demand and behavior due to the pandemic

• Ethical risks:
  
  • Scandals regarding corruption and unethical behavior
  • Loss of consumer trust due to unethical practices

Each enterprise may face unique risks depending on the industry, market conditions, and business strategy. The key task is to understand these risks, analyze their impact, and make informed decisions for their management.


RISK MANAGEMENT TOOLS AND PROCESSES

In general, the risk management process includes several stages:

• Identification of risks. Determining potential events or situations that may affect the achievement of goals.

• Risk assessment. Analyzing the probability and impact of risks to determine potential harm to the enterprise.

• Development of risk management strategies. Defining ways to minimize or manage risks, including acceptance, transfer, avoidance, or reduction of risks.

• Monitoring and control. Systematically tracking risks and the effectiveness of risk management measures for timely counteraction.

Risk management contributes to a balanced approach between goal achievement and maintaining stability in uncertain conditions.

The toolkit for risk minimization and response to challenges includes internal and external control and risk mitigation methods. Internal tools include job instructions for employees, regulation of operational processes, control and monitoring systems, various rules (e.g., fire safety), and more. These are all possible measures and mechanisms that anticipate unwanted events and minimize their likelihood.

External methods of resistance include various types of property and liability insurance, the use of secure financial instruments for asset storage, the use of outsourcing legal and other services for professional assistance, partnerships or alliances with more knowledgeable business entities for risk distribution and reduction, and so on. These methodologies can be used separately or in combination, depending on the specific needs and nature of the enterprise's activities. The combination of internal and external approaches allows for more effective risk management in various aspects of business.

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