All commercial firms and non-profit organizations face the risk of varying unexpected events and scenarios, such as natural disasters, loss of funds through theft, as well as injury to staff, customers, or visitors at the business premise. As per Michael Saltzstein any of these events can cost a significant sum of money to an organization, or even cause it to permanently close. According to him, all a risk management plan in place is needed at all organizations to reduce risks and extra costs before they incur. Michael himself has successfully led global risk services, multi-line claims, and strategic planning and enterprise initiatives, and hence has a good insight on the importance of proper risk management at a business.
Risk management basically can be defined as the procedure of identifying possible risks, problems or disasters before they happen. According to Michael Saltzstein, this allows entrepreneurs and managers to set up systems that help in avoiding risk, minimize its impact, or at least help cope with its impact. All organizations should make a realistic evaluation of the level of risk faced by it and plan accordingly. With an effective risk management process, a company can create a safe and secure work environment for all its staff members, increase the stability of business operations while also decreasing legal liability, as well as ensure a level of protection from events that are detrimental to the company.
As per Michael Saltzstein, there are multiple important steps or elements involved in the risk management process. Here are some of them:
- Establishing context: This step underlines the importance of understanding the circumstances in which the rest of the processes can take place. The criteria that must be used to evaluate risk should be established at this stage, and the structure of the analysis must also be orderly defined.
- Risk identification: The business organization should effectively identify and define the potential risks that may negatively influence a particular project or process of the firm.
- Risk analysis: Once the various types of risks faced by a firm are identified, the odds of them actually taking place should be analyzed, along with the consequences they might have. The aim of risk analysis tends to be to gain a better understanding of every instance of risk, as well as how it is able to influence the projects and objectives of a firm.
- Risk assessment and evaluation: The risks faced by a firm are further evaluated after determining the overall likelihood of the occurrence of the risk, combined with its overall consequence. A company can subsequently make decisions on whether the risk is acceptable and whether or not they can take it on the basis of the risk appetite of the firm.
Risk mitigation processes, risk prevention tactics and contingency plans in the event the risk comes to fruition, are some of the other key aspects of a risk management process followed by modern companies.