Managing Risk in Business: Analysis and Mitigation Strategies

This report delves into the critical aspects of risk management within a business context, offering a comprehensive overview of various risk types, assessment methodologies, and mitigation strategies. The report begins by defining risk management and its role in identifying and controlling potential threats, emphasizing its importance in achieving business objectives and goals. It then explores the functions and structure of risk management activities, including the roles of key committees and the importance of risk assessment, contract management, and loss prevention. The report examines different types of risks, such as strategic, compliance, financial, and operational risks, and analyzes the operations that expose businesses to these risks. It also discusses security risks, including those related to disgruntled or careless employees and mobile devices, as well as the business areas most vulnerable to fraud and security breaches. The report further explores techniques used for risk assessment, actions to manage risks, and the advantages and disadvantages of implementing a risk management system. It also addresses the roles and responsibilities of managers, the importance of budgeting and monitoring, and the impact of external influences on risk management. The report concludes by highlighting the relationship between marketing strategy and risk, the key areas where businesses are vulnerable to marketing risks, and the importance of benchmarking in reducing risks, alongside the links between crisis management and contingency planning, and the contribution of a crisis management system. The report is a valuable resource for understanding and effectively managing risks in a business environment.

Managing Risk in Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
1.1 Role of risk management......................................................................................................1
1.2 Functions of risk management activities and structure.........................................................1
3.1 Types of risks........................................................................................................................2
3.2 Operations that expose businesses to risk.............................................................................3
3.3 Types of security risk............................................................................................................3
3.4 Business areas which are vulnerable to fraud and security breaches....................................4
TASK 2............................................................................................................................................4
2.1 Techniques and methods used for risk assessment...............................................................4
2.2 Actions used to manage risks................................................................................................5
5.1 Advantages and disadvantages of business who have risk management system..................5
5.2 Responsibilities and roles of manager for risk management................................................6
5.3 Role of budgeting and monitoring in risk management........................................................6
TASK 3 ...........................................................................................................................................7
4.1 Effect of external influences on managing risks...................................................................7
4.2 Importance of integrated risk management in reducing impact of external influences........7
7.1 Relationship among marketing strategy and risk..................................................................7
7.2 Key areas in which business are vulnerable to marketing risk.............................................8
7.3 Importance of benchmarking in reducing risks.....................................................................8
TASK 4 ...........................................................................................................................................9
6.1 Links among crisis management and contingency planning.................................................9
6.2 Vulnerability of business as it breaks in business continuity................................................9
6.3 Contribution of crisis management system.........................................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11
.......................................................................................................................................................11

INTRODUCTION
In the last two decades, the economy of a world has vital changes on management of
organisations and various new strategies are also implemented and introduced in order to
successfully deliver and manage projects within the given time and the budget which is
allocated. One of the major factor which affect the execution of project and also cause fail and
loss is called risk factor (van der Vegt and et.al., 2015). After the occurrence of financial crisis
which was there in 2008, many global organisation focus on management of risk and analyse the
importance and methods of controlling risk in their business. This report is prepared which will
assist in understanding risk management and will give ways for reducing risks.
TASK 1
1.1 Role of risk management
Risk management can be defined as the way for mitigating, managing and assessing
losses. There are several types of risks in a business which affect its overall operations and also
affects on the growth of business. It is the process used for analysing, identifying and responding
to the risk throughout the whole project so as to achieve the objectives and goals. This process
evaluates the risks which my arise from a hazard by taking adequacy of existing control into
consideration and make decision regarding whether a risk is acceptable or not. Risk management
plays a main role in analysing, identifying an controlling risk, these roles can be defined as:
 Risk management helps in identifying potential problems before their occurrence so as to
plan risk handling activities. There are different problems which may be in relation to
finance, assets etc. and can be solved with the process of risk management.
 It address various issues that may hinder achievement of various objectives. Objectives
and targets are set up by company which will help them in their success. Risk
management assist in finding issues which hinder growth.
 It mitigate and anticipate the risks which have critical effect on the business project.
 It identifies risk at early stages with the involvement an collaboration of stakeholders.
1.2 Functions of risk management activities and structure
As an employee of the Abacus Ltd, it has been analysed that risk management structure
consists of three level in order to make management of risks. Escalation levels and
1

responsibilities in order to deal with risks are clearly defined in a company. The major bodies
are:
 Risk Executive Committee: Responsible for controlling risks and managing groups, it
consists of two members from the board of management. Mainly, this type of committee
is focus on handling risk that occur at workplace. In this, It is major role of risk
committee to review all the methodologies that help in risk measurement. With the help
of this management of the company can easily minimize the risk factors.
 Group Credit Policy Committee: It is the sub committee of risk executive committee and
handles responsibilities regarding group wide credit principles. Under this, a group of
people in business organization is highly responsible for evaluating the credit standing
and ability to effectively rebound the debt prospectives. This will contribute in
effectively managing as well as minimizing the risk factors at workplace.
 Group Reputational Risk Committee: It is the sub-committee of risk executive
committee and make decision regarding questions which are in relation with reputation
risks. Under this, it is formal governance committee which provide recommendations
and advice to the senior management group with the aim of reputational risk.
2

There are various risk management activities which can be defined as:
 Risk assessment: It is a systematic process which is used for the evaluation of potential
risks which is involved in a undertaking or activity. Mainly, it is a term which used to
determine the overall process of method to describe hazards and risk in effective manner.
This will help in managing as well as reducing the chances of arising risk within the
organization.
 Contract management: It is defined as the management of contracts with employees,
customers, partners and vendors. The personnel who are there in contract administration
support, manage and negotiate effective contracts which are expensive to retain. Mainly,
it is a process of managing contract creation that helps in reducing the financial risk.
Apart from this, organization also encounter an ever increasing amount if pressure that
will contribute in reducing cost and at the same time also improve the overall
performance of the company.
3

 Prevention from loss: Loss prevention is a group of activities which are employed by
retail companies for preserving profit. The main reason of a preventable loss is deliberate
or inadvertent human action in organization which may contribute in preserve profit in
company.
 Settlement of claims: A claim settlement is defined as the agreement among two or more
parties to make settlement of legal claim with other terms and payment.
3.1 Types of risks
There are various types of risks which are faced by business and can be defined as
follows: Strategic Risk: This type of risk may arise in business when poor decisions are made
from inappropriate decision execution, from inadequate allocation of resources or from a
failure regrading giving response to modification in business environment. There are
many situations in business which gave problem due to lack of resources and affect
working, such type of risks are called strategic resources. Compliance Risk: These risks are subject to bureaucratic or legislative regulations or
rules or those which are in association with best practices regarding investment purpose.
Business make investment in order to expand it, and there are issues which are related
with investment policies which are called compliance risk. Financial Risk: Such types of risk defines how money is handled by business. It includes
to which customers credit should be given, debt load of business etc. These risks also
consider rate of interest. Finance is the key part of business and is required to carry out all
types of operations in a business.
 Operational Risk: These risks arise due to internal failure which means fail of system,
people and process of business. Operational risks may also arise from external events
which are not considered like breaking down of transportation system etc.
All these are the major types of risk which may affect the whole business activities in
negative manner. Thus, it is important for organization to effectively evaluate the potential risk
and also tries to manage and control. By this company can easily improve their overall
performance of the company. In context of Abacus Ltd, company face operational risk within
their business activities. For overcoming from this risk factor, company can easily manage and
4

maintain risk elements by implementing appropriate strategies. It directly contribute in
enhancing overall performance of the company at market place.
3.2 Operations that expose businesses to risk
There are various business activities and operations due to which there is a occurrence of
risk in any organisation whether large or small. The term business risk can be defined as the
possibility of losses because of uncertainty and inadequate profits. Organisation should make
proper management of risks so as to achieve business objectives and goals. Several key
operations and activities which expose business to risks are:
 Change in preference and taste of customers: In current market environment, customer's
taste may change very fast which create negative impact.
 Increased competition in a market: Due to higher competition firm are reduce their
market share.
 Change in policies of government: Government has make change in their rule and
regulation according to market condition which increase risk.
 Mismanagement of marketing and sales activities: With in a firm lack of communication
has increase conflict between employees thus increase risk.
 Lack of finance and other resource needed for business operations: With out fund no
one company are able to run their business activities effectively.
 Errors in financial statement and other reports: Misbranding financial statement has
make negative image of the company at market place as well as customer's mind.
In this context, there are some operational ways that is used to exposed to risk within the
business organization. All these can be understood by following points:
 Employees related risk: For combat risk, it is important for business organization to find
out the right and appropriate staff which may assist in improving as well as developing
positive performance at workplace. In addition of this, it is not only includes salary
benefits but also determining what is important for employees to provide them better
satisfaction.
 Finance related risk: It is also important for business organization to make an effective
plan through which company can easily contribute in attaining long term success at
market place and at the same time also keep income in systematic manner. Mainly, it is
5

related with the interest rates, foreign exchange rates and many more that directly affect
the overall performance of the company.
3.3 Types of security risk
There are various types of sec
unirity risks which may occur in business and can hinder its working and operations. Such risks
can be defined as follows: Disgruntled employees: Internal attacks are the biggest threat for any organisation.
Rogue employees who are the IT team members and having knowledge and access of
admin accounts, networks and data centres may cause damage. Mainly, it is a person of
business organization which is not much satisfied with the firm and also angry on
something. As workers are put their less efforts to perform their activities which may
negatively affect the whole performance of the company at market place. Uninformed or careless employees: A careless employee who leaves his/her system
unlocked is dangerous who can leak necessary information to competitor. Similarly
employees who have not received proper training regarding security will also be a
problem for a company. Mainly, this type of employees are hide incidents caused by
careless employees. Thus, it is important for organization to maintain as well as improve
their worker performance by providing them better support and guidance so that they can
easily perform their task.
 Mobile Devices: Data theft will be a main problem if employees will make use of mobile
in order to share data and access company's information. It has been analysed that mobile
security breaches have affected many global organisations due to which there is problem
in their working.
3.4 Business areas which are vulnerable to fraud and security breaches
Data breaches target several organisations who are making its operation in market, but
the main business areas which are vulnerable to security breaches and risks which may result in
damaging thousands of pounds. A security breach can be defined as any incident which may
result of unauthorized access of devices, services, networks, application and data by bypassing
underlying mechanism of security. Security breach is sometimes also known as security
violation.
6

Human error is defined as one of the major factor which cause security breach. Humans
are not machines and can do any type of mistakes which may cause serious problem for a
business. Wrong entry in accounts, file, stolen devices and misaddressed emails are some of the
examples of it. Leakage of passwords which are done by insiders. There are various malicious
employees whose aim is to damage or steal, is the kind of real risks. Some employees sell
intelligence or data, steal competitive information etc.
Furthermore, information theft, loss and attack are also the most prevalent type of fraud
experienced in business organization. It is more important for business organization to report
cyber incidents to manage the risk factors. This will contribute in improving overall performance
of the company at market place.
TASK 2
2.1 Techniques and methods used for risk assessment
There are various methods and techniques which are used for measuring and assessing
risks:
 What-if-analysis can be used for identifying hazards and threats. In this there are some
questions regarding what may go wrong and what will happen if there will be wrong
things. Such kind of analysis is called brainstorming activity. Business who operate in a
market have varieties of threats and risk and this techniques is used for such analysis.
This type of analysis is carried by the people who have proper knowledge about areas and
operation which may help in exposed to managing hazardous events and condition which
may contribute in attaining positive outcomes.
 Checklist methods can be used for known hazards and threats for identifying risk and
threats. Value of such type of analysis depends on checklists quality and users
experience. With the use of this, overall analysis is depends on the quality performance of
the company. Mainly, it is a method by which company can easily analysis the risk
factors that may negatively affect on the quality performance of the company.
 Combination of what-if-analysis and checklists can also be used. Checklists make sure
that all related what-if-questions are discussed and asked and encourage creative
approach related with risk assessment (Tummala and Schoenherr, 2011).
7

 Hazard and operability study (HAZOP) is also used for identifying hazards and risks.
This method is used for thorough analysis. However it is time consuming and costly. It
also requires strong leadership and also is more time consuming. Along with this, it also
analyse the knowledge interdisciplinary. Detailed knowledge towards the specific areas,
operations and process as well that may help in exposed to hazardous events and
condition as well.
 Fault tree analysis (FTA) is used for identifying things which may cause hazardous
events. Mainly, it starts with specific hazardous event and then also tries to determine the
every possible cause which may contribute in reducing the chances of arising any kind
risk activities in most effective manner.
 Risk has measure by analyse opportunities cost of the project and management of the
company may identify this cost in order to gain higher profits in select work. Through
this, firm are capable to achieve aim and objectives in given time frame.
2.2 Actions used to manage risks
As per Kaplan and Mikes (2012), there are various actions which are used for the
managing risk in business. Risk should be managed properly in business so as to achieve growth
and success. Owusu and Habiyakare (2011), says that there are five steps or actions which are
used for the management of risks. First step is identification of risk which was done by particular
team in a company for describing, recognizing and uncovering risks which may affect business.
Second step is the analysis of risk used to determine consequences and likelihood of every risks.
As per Reuvid (2010), next action in risk management is ranking or evaluation of risk by
analysing magnitude of risk which is a combination of consequences and likelihood. Decisions
are made in this step in order to know whether the risk is acceptable or not. Another step is treat
the risk which is also called as risk response planning. Tang and Musa (2011), states that in this
step highest ranked risk is assessed and plans are being set out to modify and treat such risks.
Last step in this process is reviewing and monitoring of risk which is used to track effects of risk.
As per the point of view Gurnani, Mehrotra and Ray, (2012), risk transfer and contracting
is one of the important way of risk management in which the manager of the company allocate
the risk to parties who are the best in managing it effectively. In context of this, risk allocation
without quantitative risk assessment can help in effectively handling the participative of shifting
the responsibilities to others. With this assistance of this, company can easily handle and manage
8

the risk within the organization and also improve overall performance of the company at market
place.
5.1 Advantages and disadvantages of business who have risk management system
Several advantages and disadvantages are there for the business who make use of risk
management system, which can be described as follows:
Advantages
 This system helps in creating such culture in organisation which is more risk focused.
 Supports in giving standardized report which tracks risk of enterprise and can improve
focus of executives and directors (Sadgrove, 2016).
 Improve perspective and focus on risk which assist in detecting potential risks.
 This system make efficient use of available resources.
 Effective coordination of compliance and regulatory matters.
 Mainly it is the process of reducing the risk factors within the organization.
 It also save cost and time of the company. It provide new opportunities to business organization for making overall performance
competitive.
Disadvantages
 Establishment of risk management system in an organisation involves high amount of
cost.
 If there will not be proper understanding of opportunities and risks then this system may
implement incorrect strategies.
 It is depends on external entities that may increase overall cost of the company.
 Risk management system is also create difficulties in implementing in business
organization which may increase the chances of arising risk factors a workplace.
 Under this, all the risk factors are unmanaged which negatively affect the overall
performance of the company.
5.2 Responsibilities and roles of manager for risk management
The risk manger plays a main role in an organisation for the assessment of risk and have
several roles and responsibilities which can be defined as:
 Gives methodology for analysing and identifying financial impact of loss to the public,
environment, organisation and employees (Reuvid, 2010). by which they are able to
9

enhance their profitability as well as long term sustainability. Along with this, manager of
risk manager is also responsible for determine the cause of arising risk within the
operational activities that may improve the quality performance of the company.
 Examine the use of cost effective and realistic opportunities for balancing retention
programs. By achieving economic of scale, enterprise are able to provide low cost goods
and services thus help to attracting large number of consumers toward their products. In
this manager of risk management can implement as well as develop an effective plan to
provide the best products and services to their customers at affordable cost.
 Prepare insurance and risk man budgets and make allocation of claim costs and
premiums. Manager has insure all future risk in order to save opportunities as well as
fund thus help to run whole business activities appropriately in future period of time.
 Maintain and establish records like claim, loss experience and insurance policies. By
which management has able to make comparison with all income and expenses from last
few years thus help to make financial report effectively.
 Supports in reviewing new program activities, proposed facilities and major contracts for
insurance and loss implications. Manager has build strategies to reduce the negative
impact on organisation performance in long run. In this manager of risk management also
play vital role in developing as well as implementing the strategies with the purpose of
reducing the negative impact on business activities.
5.3 Role of budgeting and monitoring in risk management
As per Owusu and Habiyakare (2011), management of risk is very necessary in a
business as it will help in identifying various risks which may affect working of an organisation.
Monitoring and budgeting of risk plays main role in risk management. These two factors helps in
contributing for the success of project by maintaining list of external and internal risks. This
plan includes identification of risks, occurrence probability, proposed action and potential
impacts. With the support of monitoring and budgeting, it can also be ensured that there is a
smooth running of a project with support of team members.
Kaplan and Mikes (2012), describes that by describing process of risk management,
company can make success by eliminating and minimizing negative risks so that projects can be
completed on time. Budgeting factor will helps in meeting budget and fulfil targeted goals.
10