, Introduction: Understanding risk management
1. Risk creates uncertainty for the achieving of strategic objectives due to changes in
circumstances or consequences of events.
2. Risk management is a continuous process of identifying and determining the extent of
risks and putting in place strategies to reduce or eliminate risks that may influence
business strategy, objectives and implementation of strategies (Louw & Venter
2019:502).
3. Risk Management means considering how changes in the internal environment could
affect the organisation and anticipating and reacting to changes in the external
business environment.
o Risk management is not a once off process but requires continuous scrutiny of the
environment for changes by obtaining information internally and externally
across various levels of management.
o Risk management processes should be embedded in strategy planning, strategy
execution, and strategic management.
o Appoint a Risk Management leader responsible for monitoring risk and for giving clear
guidance about when to escalate risk information to the crisis management team.
Role of risk management in Strategy Performance
There’s a strong connection between strategic business performance + risk
management:
o Many organisations regularly engage in strategic planning, they often do not foresee all
the risks that could derail the effective execution of their intended strategies.
o Successful strategic management is dependent on how well an organisation is able to
determine and manage risk
o Robust risk management is necessary to ensure operations are effective and efficient,
o Risk management is essential for business continuity and for creation and protection of
value.
o Strategic risk contributes to 86% of business destruction when it can take only 6% of
management’s time to assess the risk.
Benefits of risk management lie in Building Stronger Organisations through selecting
sound strategies for resilience which intern lead to achieving objectives, increasing
competitive advantage and improving the image of the business!
, COVID-19 an igniter in Risk Management
COVID-19 pandemic has drawn executive attention to RM, but it’s crucial that
business managers understand that the business benefits extend far beyond avoiding
a crisis.
o Research shows that an agile response by organisations in the COVID-19 pandemic
occurred far more often when a clear Risk Management processes already existed in
organisations.
o A proactive ERM team meant that managers felt empowered to raise the issue (COVID-19)
and this led to swift and effective mitigation.
“The epidemic situation creates not only a crisis, but also new opportunities to learn lessons. In my
view, from a purely risk management perspective, COVID-19 will represent a shift towards more
frequent risk identification and risk management. In the past, the lack of data was an obstacle to
predicting adverse events; today, the necessary data is already available. This was the case before the
pandemic outbreak, but the crisis and the increased digitalization that comes with it inevitably require
better processing and understanding of data” - said Zoltán Szöllősi, Director of Deloitte Risk Advisory.
Risk Management and Decision Making
Decision-makers need to assess risk and make the best possible decision more
quickly and efficiently than ever before.
o What worked in a risk management strategy before may not now, since the
pandemic
o Decision-making is a complex process that entails making a choice to act/ not
act in a deliberate manner, that lends itself to the pursuit of organisational
goals.
LO 1 UNDERSTAND RISK AND RISK MANAGEMENT
Conditions for decision making:
This exists when information is sufficient to predict the results of each
Certainty alternative in advance of implementation. Certainty is the ideal problem-
solving and decision-making environment to have.
This exists when decision-makers lack complete certainty regarding the results
of various courses of action, but they can assign probabilities of occurrence.
Risk
Probabilities can be assigned through objective statistical procedures or
personal intuition.
This exists when managers have so little information that they cannot even
Uncertaint assign probabilities to various alternatives and possible results. Uncertainty
y forces decision- makers to rely on individual and group creativity to succeed in
problem-solving.
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