What is Business Risk Management?

Business risk management is a system of identifying, assessing, and addressing potential risks in a business in order to prevent or reduce losses. Potential business risks include property damage, illness, and liability. Other losses in a business can include theft or damage due to people or costs incurred from breakdown or delays within a production system. Business risk management can also be called enterprise risk management.

Means of managing risk can include preventing losses from occurring due to risks and reducing the amount of loss that a risk causes. Well-designed business procedures can help keep businesses out of situations in which crimes might be likely to occur. Preventative procedures might include a nightly lock-up routine to prevent break-ins, or an organized system of handling company cash to prevent money loss or theft. Business managers can also implement procedures like keeping two managers on staff through closing and checking employee handbags before they leave work or go on breaks to deter would-be internal thieves.

Natural disasters like earthquakes, storms, and floods can also present risks to a business. Businesses at risk of loss due to natural disasters usually buy insurance to reduce losses in case a disaster hits the business. Some owners insure their business only against likely disasters in the local area, while some get full coverage to avoid unexpected disasters that drain their company budget. Coverage against multiple types of natural disaster is more expensive than coverage against one type of natural disaster loss.

Once a risk management team identifies potential solutions for a risk, they must then implement the solutions and monitor the progress of the solutions they implemented. Obstacles in implementing business risk management solutions include budget constraints and lack of compliance. Preventing unexpected costs from a risk sometimes involves investing money in equipment and education designed to address or eliminate potential risks. If a company needs to train employees in a new and safer procedure to prevent injuries in the workplace, training costs money in both training program expenses and lost manpower while workers are trained. Sometimes, employees have trouble learning the training or refuse to implement the new procedures, which can cause problems in risk management.

A business can face crimes like theft, fraud, and vandalism that can cause large financial losses for a company. This field of risk management is called loss prevention. Businesses can combat these risks by installing anti-theft equipment like surveillance and alarm systems in areas where theft is likely. These systems serve to deter or record instances of internal theft or robbery.

Companies that need a business risk management plan can get risk management information from risk management books, software, and hired consultants. Business risk management software is often tailored to specific types of risk management. Varieties of risk management software for businesses include financial risk management, compliance risk management, and risk management software that targets fraud.