This article has been contributed by Hersh Shah, CEO, India Affiliate of Institute of Risk Management (UK)
Business, and life, are all about recognising different kind of potential risks and defending against them, everyday. There are innumerable companies in the world, yet so many businesses fail so frequently.
The reasons for these failures can range from something as elementary as the market not having a need for a particular product, to something as complex as a pandemic that brings the entire world to a grinding halt.
But the ultimate cause is always the failure to anticipate a business risk and plan to mitigate its impact. In an increasingly global business scenario, opportunities and threats have both multiplied and it is no longer enough for companies to survive. They need to thrive, and successfully managing business risks is the only way to do that.
To understand risk management, you need to know what risk is. A risk is any occurrence, the impact of which is likely to cause deviation from an expected desirable outcome or objective. For example, enterprises entering a new market are at risk of not gaining acceptance, and being unable to raise funding is a risk for startups.
There are many other risks too, arising from a number of factors – technological, geopolitical, socio-economic, and even biological, as we now know.
Risk management is about using different trends and developing situations to identify all possible risks, analyse them and put a plan in place to minimise their impact on the organisation’s objectives.
However, Enterprise Risk Management is a strategic approach to managing risks across an organisation or business unit, that provides an assurance on the company’s strategic operational and financial objectives.
It is pertinent to note that risks can be opportunities for growth, and the success of an organisation at navigating risks brings with it an increase in reputation and trust among stakeholders. Successfully avoiding a threat through a long-term risk strategy also establishes organic thought leadership for the organisation.
Risk management for enterprises
As economies have knitted more closely together in recent decades, the business ecosystem has become more dynamic and complex. Managing risk in enterprises has, therefore, also become a complicated process.
It is no longer sufficient to implement risk management processes that are focused on compliance; companies have an imperative to develop risk management strategies for the mid to long term, that take into account a much more granular view into their risk environment.
Potential risks for businesses include supply chain disruption, cyberattacks, data loss, changes in regulation, environmental accidents, employee attrition, product defects, third-party risk and financial loss.
To guard against future risks, companies must be aware of their entire threat landscape, and so they need to assess risk across their entire value chain, including vendors and other partners. Only then will they gain a holistic understanding of which possible scenarios lie ahead.
Risk management for startups
While many risks are common to all businesses, startups are also susceptible to certain other risks. Many of them begin bootstrapped – a scenario that represents both an advantage and a threat.
Aside from the risk of not being able to secure funding, startups also run other risks such as insufficient liquidity, bigger competitors, difficulty in scaling their operations, gaining customers, acquiring / retaining talent, inadequate technology adoption, and lack of succession planning.
Entrepreneurs need to keep in mind that investors are no longer looking at pure play revenue projections alone, they are also looking at profitability, overall risk management strategy, and the ability of a startup to bounce back from a significant external risks. Having a strong risk focus in decision-making and operations goes a long way towards obtaining the investors’ trust.
Careers in risk management
A great risk manager is able to look beyond the immediate future, map all possible threats, and find ways to help the company neutralise negative impact. For this, a risk manager needs to have a thorough understanding of the organisation and its culture, and also possess strategic decision-making skills and the ability to build collaborative relationships.
Whether someone wants to work in a large organisation, expand their family business, or set up a new venture, they need to develop a risk approach, for which they need to possess the acumen to identify risk, set up risk management processes and also have risk response strategies in place.
Risk management is not just about finance and insurance, it is relevant across sectors. Students interested in risk management as a career can begin as an entry-level risk manager and can eventually progress to being a Chief Risk Officer (CRO).
As risk management is important across functions and roles in an organisation, working professionals can augment their existing capabilities with risk management qualifications to diversify their career or build a stronger base in their current domain.
Various career applications include industry risk management teams, risk teams in family businesses / startups, risk consulting / advisory, due diligence in investment banking, risk management at ratings agencies, credit or risk in banks / NBFCs / FIs, and risk research in equity markets.
The Institute of Risk Management (IRM) is a globally recognised professional body that provides qualifications in risk management. Over a span of 30 years, IRM has created a niche community of business leaders and risk professionals across 143 countries.
IRM also has 360 exam centres across India. The internationally-recognised qualifications span 5 levels, with designations from Level 2 to 5. Level 1 has exams every month, while levels 2 and 3 have qualification exams in June and November.
The average passing rates for levels 1 through 3 are 70%, 55% and 35% respectively. Level 4 and 5 designations are application-based and do not require exams to be administered. IRM qualified students and members in India are working with companies like Deloitte, Swiss Reinsurance, Barclays Bank, Larsen & Toubro, Aditya Birla Group, Edelweiss etc.
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