Implementing Risk Management in Your Business

Do you know risk management? Risk management is concerned with managing uncertainty. Managing uncertainty is important in running a business. Uncertainty that may occur in a business / business is related to the lack of information owned by the manager about what will happen.

This uncertainty is not always detrimental, sometimes it can even be profitable. Beneficial uncertainty can be referred to as opportunity or opportunity, while adverse uncertainty is usually referred to as risk or risk.

Risk management focuses on the second type of uncertainty, namely risk. Risk is a situation that must be faced by business managers, in which there is a possibility that can harm the company. No matter how small the possibility of harm is, it is still considered a risk that must be managed properly so as not to have a negative impact on the company.

What is Risk Management?

Before applying it, you should first understand the meaning of risk management itself. Risk management is a structured methodology or approach used to manage risk (uncertainty that tends to be detrimental or related to threats) by involving all possible ways.

Risk management in a company aims to reduce various risks related to your line of business. The risks that may have to be borne by a company can be caused by many things, such as technology, organization, political environment, and human resources.

In risk management, there are several series of procedures carried out to manage risk in the business. The series of procedures are assessing risk, developing strategies to manage risk, and mitigating risk by utilizing the management or empowerment of available resources.

There are various strategies commonly used in managing risk, ranging from avoiding risk, transferring risk to another person or party, to accepting part or all of the consequences of the risk.

Risk Management from Time to Time 

The application of risk management has existed since time immemorial. History records that the Hammurabi Charter made in 2100 BC contains a regulation that states that shipowners are allowed to borrow a certain amount of money to buy cargo, but if later the ship sinks or is lost during a voyage in the vast ocean, the ship owner does not need to return the money he has borrowed. . 

Risk management in the Hammurabi Charter only emphasizes security risks, which are included in non-entrepreneurial risks.

In the 1970s to 1980s, risk management was widely applied by insurance companies. These companies motivate entrepreneurs to protect their goods by insuring them. After that, various types of risk management developed in the world, ranging from quality assurance popularized by the British Standards Institution to the emergence of the world's first Chief Risk Officer profession in 1993.

At its peak, in 1995, Standards Australia of the World's The Risk Management Standard issued AS/NZS 4360:1995. Risk management has also begun to have many innovations, not only relying on conventional risk management concepts that focus on risks caused by physical or legal causes, such as natural disasters, deaths, and lawsuits.

Risks That Can Be Managed with Risk Management

In the implementation of risk management, risks can be divided into several types, namely as follows.

Pure Risk. 

Often referred to as pure risk and insurable risk, pure risk is a risk that only gives negative consequences or is detrimental, it cannot be profitable. An example of pure risk is an office building fire. 

Fire is certainly very detrimental to the company, unless the fire is a deliberate event to achieve a specific purpose. In risk management, this type of risk can be managed by avoiding and minimizing losses with insurance.

Speculative risk. 

Also known as business risk, speculative risk is a situation in which a company can gain or lose. An example is investment. An entrepreneur who invests his money has two possibilities, the first is if the investment is profitable and the second is if the investment is profitable.

Tips for Implementing Risk Management

Risk management steps in a company start from actively identifying risks to assessing and researching the level of risks that may arise. Thus, entrepreneurs can prioritize management and determine procedures that can be taken to deal with these risks so that losses can be minimized as much as possible.

The implementation of maximum risk management will not only reduce losses and avoid unexpected events that can harm the company, but also increase the confidence and confidence of entrepreneurs in running their business.

There are times when risk management is not implemented effectively. The causes of the ineffectiveness of risk management are lack of knowledge about risk management, imperfect systems, human resources who do not heed risk management, and lack of commitment from entrepreneurs to apply risk management as well as possible.

To avoid ineffective implementation of risk management, the following are tips that entrepreneurs can try.

1. Blending Risk Management Concepts From the Beginning

This is an important first step. If risk management is not implemented as soon as the company or a project is planned, the project or company will face the danger of loss as well as the loss of potential profits. 

Therefore, risk management must blend with project or company management at every stage, from planning, implementation, to closure.

2. Identify Risk Management as Early as Possible

This risk management step is useful to provide an overview of what risks you will face so that you understand how to control them. In carrying out risk identification, involve human resources, for example project team members, because each individual has special skills, different experiences, and knowledge so that their involvement will contribute different perspectives in identifying and implementing risk management.

In addition, experiences and lessons from previous projects can be used as benchmarks in studying the risks that may occur in the project to be implemented. Make careful observations of matters related to your work and business planning, such as documents.

3. Risk Management - Realize That Not All Uncertainty Is Harmful

One thing that is important to remember in risk management is that uncertainty is not always bad. An uncertainty that you face may create an opportunity, not a risk, and provide a significant advantage for your company or for the implementation of a project. 

For example, weather factors, weather uncertainty can actually be an opportunity to get an extension of the project implementation time.

4. Exchange of Information Regarding Risk and Risk Management

When risks are in sight, sometimes the implementation team, which is the spearhead of project implementation, knows more about it. In a position like this, it is important for the implementation team to provide information to entrepreneurs as soon as possible.

There are times when the entrepreneur, who is part of the planning team, first knows the risks that exist, then he must also provide the information to the implementing team. In essence, the risk must be conveyed as soon as possible through scheduled meetings so that the handling is much more optimal.

Many company owners consider risk as a work hazard or threat that can be minimized or eliminated. Traditional risk management is only focused on minimizing and eliminating losses from the risks faced.

However, it should be realized that risks can be turned into opportunities by smart and creative entrepreneurs. Instead of thinking about minimizing or eliminating losses, smart entrepreneurs try to turn risks into opportunities through strategic plans, so that they have a good and healthy impact on the companies they manage. 

Therefore, an entrepreneur should have a proactive, measurable, and well-managed risk management application.

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