In today’s business world, institutions must be able to assess the risk they face.
How do you know what type of risk your institution faces?
To determine that, we need a framework that will help us evaluate our risks and then take appropriate measures.
This blog post will discuss three frameworks that are used in evaluating positive and negative risks: SWOT analysis, ERM framework, and Risk Assessment Matrix.
We’ll also take a look at some examples of both types of it so you can get a better understanding of why these tools are important in business decision-making.
Let’s dive right in.
What is Risk?
Risks are not always bad and can even have a positive impact on the company without causing any issues.
Risks is the line between a threat and opportunity, and the distance between a loss versus a reward.
It represents the decision-making that can either destroy institutions or cause them to thrive.
The most successful enterprises know there are two sides to risks and they both need to be analyzed thoroughly to make the best decision for your company.
What’s the difference between it and an issue?
An issue has already taken place while risks has the potential to be an issue that might not happen and can impact the institution either positively or negatively.
An example of risk vs an issue is a valuable project team member leaving the company is a risks whereas an irreplaceable team member that already left is an issue.
What Are the Benefits of Enterprise Risk Management?
Utilizing an enterprise risk management strategy allows your institution to get a perspective on the most important risks that may inhibit the completion of company objectives.
What should you include in a sample enterprise risk management report?
- Communicate using risk language to avoid miscommunications, misinterpretations, or misunderstandings. Every pertinent entity should understand the risks and terminologies involved.
- Data quality is very important because it determines how informed a company decision can be made. Challenges of data quality include inaccuracy and inadequacy. Gathering accurate data is important, even if you have to invest heavily to obtain it. Also, it needs to be integrated across the organization to deliver proper reporting.
- A clear and holistic presentation should be included to give decision-makers a clear picture of the risks and threats. The name, subject, and purpose of the report should be identifiable. Keep it simple.
- Critical aspects of reports need to be focused on as the decision-makers may not have the same knowledge as the report author. Key information and key risks areas should be highlighted for skimmers.
- Reports relevant to decision-making should be produced to avoid wasting time and resources. The object of a report is to provide important risks data to decision-makers to generate action where needed.
- Quantitative and qualitative data should be compiled in one report.
- Timely delivery of reports is important as late reports can cripple their effectiveness and decision-making. Analyses of reports are done differently in every institution. They should be produced in real-time for the best results.
- Constant review of the reporting system and report structure is required as your institution should constantly be evolving. Conduct regular checks on it taxonomy, indicators, performance indicators, risks profiles, and controls measures. They are subject to change and the changes should be reflected in risk reports.
- Risk ownership transparency is important as all risks should have a risk owner responsible for ensuring data integrity in risks reports.
What Is Positive Risk?
Positive risks is a type of risk that people tend to overlook.
They offer opportunities for growth and success.
Positive risks are often the ones that give you the most bang for your buck.
They’re any condition, event, occurrence, or situation that may provide a positive impact on your company project or enterprise.
Positive risks is good for business and the possibility of good results can turn risks into great sources of success for your institution!
The benefits of positive risks taking activities include:
- increased efficiency
- improved productivity
- greater profitability
- better morale
- higher levels of engagement and creativity among employees
- high-quality products or services
What is positive risk management?
Positive risk management is the process that starts with identifying potential benefits or harm to the institution. It is not meant to eliminate risk.
It serves to manage risks to improve decision-makers’ decisions to achieve company objectives.
What Are Examples of Positive Risk?
Positive risks can be summed up as representing opportunities instead of consequences.
What are positive risks in project management?
- Completing a project under budget due to a manager miscalculation
- Potential change in policy that could benefit a project
- Technology being developed to save time if released
- A grant that was applied for and approved
- Request for additional resources that will complete the project more efficiently
A project management risks log or register should be used to record identified risks, analyze the severity, and required actions by management.
How do you create a risk register?
To properly create a risk register, you must include all information about every identified risks including its nature, level of impact on company success, owner of the risks, and what the risk response measures should include to mitigate it.
Positive risk in supply chain
- Any time a good or service is delivered ahead of schedule
Positive risk in the development of products and services
- Risks is taken when launching a new product or service as it can flop or be a huge success. Even successful products may cause issues on material supply, production, space, and other resources
Positive risk in technology
- As your institution searches for new ways to include technology for greater efficiency. This may include eliminating jobs which means bad news for staff, but the savings in wages are positive for the company’s bottom line.
Positive Risk-Taking Policy
it involved in everyone’s job and part of everyday life.
Positive risks should be managed within a policy to maximize its efficiency to achieve company objectives.
It should be used to identify, assess, and manage risks and analyze incidents.
Responding to positive risks should include one of the following:
- Exploitation. Exploit a positive risk to help increase its chances of occurring.
- Share it. Sharing a risks means working with others who could also benefit from exploiting the risk.
- Enhance. Enhance positive risks by attempting to increase the opportunity or outcome.
- Accept it. Accept positive risks by doing nothing and seeing if it occurs on its own.
What Is Negative Risk?
They’re any condition, event, occurrence, or situation that may provide a negative impact on your company project or enterprise.
To evaluate and manage negative risks, project management risk response strategies must be used which include:
- Escalation: avoid risks by removing threats or protecting the project from the threat’s influence. The risks should be recorded in the risks register and escalated to management for review to modify the project management plan.
- Mitigate: Minimize the probability of risk occurrence or influence by adjusting the project management plan
- Transfer: Transferring risks involves tools such as indemnification, bonds, and assurance. This strategy is used when risk is transferred to a third party and used for low critical risks.
- Accept: Used for non-critical risks where there’s no change in it exposure. The risk is acknowledged, but no action is taken unless the risk becomes an issue.
Examples of negative risk-taking include:
- increases in government compliance and reporting
- increased tariffs and limits on importing/exporting
Tools for Evaluating Positive and Negative Risk
It’s important to consider the risks of both positive and negative outcomes when evaluating risks.
Although risk is not defined as good or bad, business leaders must protect the interests of the company by avoiding negative risks.
Analyzing risks can make or break a company.
These tools can help institutions evaluate risks, weigh them properly, and make informed decisions about which ones are worth taking.
SWOT Analysis
The strengths and weaknesses of an organization can help identify opportunities that may not be obvious.
Strengths should never be ignored, as they will often lead to valuable insights about how a strategy or process could improve efficiency.
Weaknesses are very important to consider because many times it’s the things we know we need improvement that can be used as a foundation for success.
Identifying negative factors can help your institution avoid, mitigate, transfer, or accept them.
When to implement: This strategy is most effective in the planning phase when forming a strategy for project management.
ERM Framework
A risk management framework is an organized, systematic way of looking at risks and evaluating them to find the most effective solutions.
The process includes identifying all possible risks, creating mitigation strategies for those that are deemed high priority or critical and tracking progress toward goals over time.
This process is helpful for both positive and negative risks because it allows institutions to take action on the mitigation strategies they create.
It consists of the following:
- Strategy and objective setting
- Risks identification
- Risks assessment
- Risks response
- Monitoring
This framework should be adopted when management looks at managing risk as a continual process.
Risk Assessment Matrix
A risks assessment matrix helps an organization assign values to each of its assets.
This allows them to examine their current state, develop a plan to minimize or mitigate losses should something happen.
Then the company must determine what could be done to prevent or reduce the risks, and create a contingency plan in case something does happen.
When not to use: This tool should be avoided when an organization has few assets that are valued relatively highly.
It also shouldn’t be used when there is a lot of uncertainty in the environment.
Conclusion
The tools in this article will be able to help you weigh the risks that come with any decision.
Whether it’s a new marketing campaign, an investment strategy change, or simply whether to eat at your favorite restaurant tonight, these frameworks can provide insight into the potential outcomes of each choice.
If you want more information about how SWOT analysis and ERM framework could work for your institution, reach out today!
Our team would love to partner with you on developing a plan that helps balance risks management decisions so they don’t cause undue stress or anxiety for anyone involved- including yourself.