Risk management and how it can generate real value for companies
Risk management helps a company's management handle uncertainties, both the associated risks and opportunities. This way, businesses can make the most out of chances to create value. Best results are achieved when management comes up with a smart strategy and goals to find the right balance between growing the company and managing the associated risks. In addition, resources should be used wisely to maximize efficiency and reach the corporate objectives reliably.
Established risk management processes help companies achieve the objectives that drive success
Aligning goals with the risk appetite
Risk management considers the amount of risk the company is willing to take when setting strategic goals and finding ways to manage the associated risks.
Making well-founded decisions
Risk management helps to identify risks precisely and to take the appropriate measures to deal with them: risk avoidance, mitigation, sharing, or acceptance.
Reducing losses
Organizations can identify potential events earlier and plan how to respond to them in advance. This minimizes surprises and reduces the associated costs and losses.
Managing comprehensive risks
Every organization faces a variety of risks that affect different business areas. Risk management allows targeted measures to be taken to counteract these overriding risks.
Utilizing opportunities
By considering an entire range of potential risk scenarios, the organization's management is able to identify opportunities and use them proactively.
Improving use of capital
By receiving extensive and reliable risk information, management can better assess overall capital needs and thus improve the allocation of capital.
Tips for successful risk management implementation
When introducing risk management (aka Enterprise Risk Management or ERM), it is crucial to consider important challenges from the very beginning to ensure success. This involves meeting the expectations of leadership while also getting the teams on the frontline (1st Line of Defense) involved. The goal is to make ERM not just a task, but a tool that genuinely benefits the company.
This also plays a decisive role in the context of the ongoing improvement of risk management. When management and the 1st Line of Defense actively show commitment and participate in the process, only the sky is the limit. Additionally, to maintain a clear and organized approach, it is vital to implement the established risk management framework consistently throughout the company - regardless of different company cultures and sizes.
Do I need a dedicated risk management solution?
To start off with ERM, Excel solutions can be used initially. But as soon as the processes become larger and more complex, this method becomes cumbersome and extremely error-prone. A professional risk management tool, on the other hand, helps avoid repeating work, saves time, and provides insightful reports that are a real value-add to the company, supporting management in its strategic decision-making.
By bringing in a comprehensive risk management tool like BIC GRC, you can set the course for efficient and forward-looking corporate management:
- Perform effective risk management within the framework of a comprehensive GRC (Governance, Risk, and Compliance) concept
- Save valuable time with ready-made workflows and automated generation of reports for each quarter and year
- Evaluate entire risk scenarios and their consequences with ease, using built-in simulation functions
- Document incidents of loss directly in the tool and let it automatically calculate net risks for you
- Adjust rating scales and risk types in the GRC software as needed to ensure the tool suits your company's processes and needs
- Integrate various risk managers at different business locations without a hitch
Benefits of a dedicated risk management software
For a solid and lasting risk management strategy in your company, it is advisable to choose a reliable and mature risk management software. This software can mirror your current processes and give you a method that matches today's standards, like ISO. Here is what you gain:
- Transparent representation of all risk management processes involved
- Audit-proof mapping of all processes
- Automatic logging of all changes made by users
- Precise representation of the risk situation in the desired level of detail
- Fast access to necessary information for audits and certifications
- Valuable time savings thanks to pre-set workflows
Modern risk management brings together skills, methods, processes, and tools. This lets organizations meet their goals reliably and handle uncertainties with confidence.
The significance of risk management has grown dramatically in recent years
With the world getting more connected, markets opening up, and cost pressures growing, many companies have come to realize that they need structured risk management. But risk management is not only a matter of personal preference; legal compliance demands it. Here are a few examples:
- Compliance with legal requirements such as BilMoG, KonTraG (D), OR (CH), and URÄG (AT)
- Equity regulations for banks (Basel II) with guidelines for credit assessments and lending processes
- Rules for corporate governance in companies (like the German Corporate Governance Code (DCGK))
- Audit of the early risk warning system according to IDW PS 340 (German auditing standard from the Institute of Public Accountants)
To meet both legal and internal company requirements, it is not sufficient to look at individual risks one by one. A better way is to opt for an integrated approach that lets you look at risks in a bigger picture, incorporating risk management into overall company management and keeping in line with company objectives.
This is where a risk-based approach comes in. This approach should be firmly woven into the organization through the use of risk management software and become an integral part of the company's way of doing things. Getting employees on board is key here – their involvement ensures that the evolving risk management processes are put into real action.
An integrated approach to risk management releases new potential to add value
To effectively handle the wide-ranging demands of risk management, a comprehensive strategy is needed that's built on a solid foundation and is deeply ingrained in the company's culture. Only when these foundations are in place can risk management truly assist the company in better risk management and spotting opportunities to add value. While this might be common knowledge, many companies still rely on fragmented solutions that lead to various issues. These isolated approaches often hinder a complete overview of all relevant risks and also make it tough to manage compliance and operational risks efficiently.
In contrast, an integrated approach bridges gaps between compliance and risk management, cuts down on repetitive tasks, and equips management with a complete perspective. Modern risk management, backed by appropriate software, empowers companies to devise strategies for increased profits and value. Risks are not just seen as threats anymore, but as potential chances for strategic growth. When using a risk management solution, the process generally involves the following steps:
Identification
The first big step is identifying risks, which is arguably the most crucial one as risks that remain hidden always pose a great threat. For better further processing, the identified risks are then grouped together (= aggregated) based on their types or areas.
Evaluation
In risk management software, different qualitative and quantitative methods are available for risk analysis, including self-assessments and Monte Carlo simulations. The main aim here is to quantify risks, i.e. to express them in numbers.
Control
To effectively control and manage risks, various options are available. These choices depend on how severe the risk is and how urgently it needs to be addressed:
- Risk avoidance if the danger is significant
- Risk reduction by lowering the probability of occurrence
- Risk transfer or sharing (e.g. through insurance or partnerships)
- Risk acceptance if the threat is small and it does not make sense financially to reduce it
Reporting
Integrated reporting is necessary to ensure effective risk management. These reports, which stem directly from the software, guarantee on-going checks of processes and measures, and provide management with a complete risk overview.
Which risk management software is right for me?
Whether you prefer a custom design or pre-built solution, GBTEC offers the right software for your needs.
See for yourself and discover our BIC GRC Solutions for professional risk management.
BIC Custom GRC
BIC Custom GRC offers flexible custom solutions that can be tailored to your unique processes.
BIC Enterprise Risk
BIC Enterprise Risk is our intuitive standardized solution that meets common standards and is easy to implement.
Software for beginners and professionals: Make full use of the potential in risk management
Professional risk management creates the foundation for your successful GRC strategy. Start with BIC Enterprise Risk and expand your digital governance, risk and compliance processes step by step with BIC - in risk management and all other GRC areas.
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