Every business has risks that are inherent to them, some are easily foreseeable while others fall into unknown territories. Organizations and projects need to create a risk management & control process that ensures that the business has awareness of key risks and takes the appropriate action, whether to accept, mitigate, transfer or avoid it. There are major challenges in making risk management decisions, this article aims to emphasize the importance of risk control and the creation of procedures & guidelines to ensure the company is well covered.
Risk management provides organizations with a framework and tools to reduce or offset risks. At times, risk management can be pushed too far, creating further challenges in making risk management decisions, leading to major inefficiencies. For example, too much risk management can extend the amount of time needed to plan and execute a project to a point where the return on investment and feasibility becomes inadequate.
There is a delicate balance that leadership has to consider when creating the incentive mechanisms of risk management. Failure to do so can cause the organization to promote overly safe practices that stifle innovation, operational efficiency and ultimately leading to organizational stagnation. It can also have a profound impact on hiring and promotion practices, leading to managers that prefer excessive caution as opposed to a balanced risk profile.
It is important for the organization to be cognizant of its risk profile and to revisit it from time to time to ensure that it remains viable. Risk aversiveness can lead to stagnation and consequently cause the organization to become obsolete.