Risk resilience Customer-centric sustainability Part 1

By Navin Munjal

The author presents an invaluable blueprint for introducing and nurturing a risk management culture in the corporate world, especially for small and medium-sized industries.  It is a treasure trove of insights, catering to seasoned risk professionals and those looking to embrace and implement effective risk management strategies, particularly in the small and medium-sized industries. The transformative potential of Microsoft Excel as an ERM tool is a game-changer. It shows how this readily available, cost-effective resource can streamline risk management processes, leveling the playing field for smaller enterprises, even those without the financial resources to invest in costly software solutions. Setting the stage with crystal-clear definitions, the book ensures that readers establish a strong foundation in ERM, in today's cutthroat business landscape, which is crucial for a smooth journey.  Offering practical deployment strategies, insights into risk governance, exploration of the 'unknowns', and real-world case studies. Navigating the Future serves as a potent catalyst for change, ushering in a culture of risk awareness and preparedness, It is the key to unlocking a new era of corporate prosperity and can also prove to be a valuable resource for students pursuing MBA and BBA courses, even the general public providing them with practical insights into the ever-changing external business environment and equipping them with essential skills for success “.

• Language: English
• Publisher: Blue Rose Publishers
• Release date: Nov 6, 2023
• ISBN: 9789359892788

Book preview

CHAPTER 1

BASIC DEFINITIONS

Ambiguous definition of Risk management

The term risk has a variety of definitions. When someone tells you to take the risk or not to take the risk the communication can be ambiguous due to inconsistent meaning attached to the term risk in one's mind, often carries a negative connotation such as injury, potential negative impact, or undesirable outcome. Some common understandings of risk include losing money in investments, financial shortages and fluctuations in the stock market. This list is endless as risk is omnipresent. Therefore, the risk does not have a standard definition, rather, every individual has developed his definition based on their actions, inactions, and risk appetite. Actions or inactions can have favourable or unfavourable outcomes. The definition of risk can be analysed as follows: an event that exposes individuals despite their actions or lack thereof. The definition emphasises the following aspects:

An event has occurred.

There is an action or inaction taken in response to that event.

The outcome of the action is uncertain.

The outcome is less than the desired results.

Example to understand the above aspects: Someone crossing a busy road without looking both ways, there is a potential danger of being hit by a speeding vehicle which can be fatal.

What is a risk as per the common man?

During the pandemic, different thoughts were floating around about how the transmission of the virus takes place and different theories have been revolving around them. People were concerned about whether the virus could be on their clothes, shoes, air or beard. Questions arose such as how long the virus remained on their clothes. Most people pondered upon such thoughts and tried to find viable solutions to this problem. When people perceive any risk, they immediately react and start taking preventive actions to mitigate the risk. In the above case, actions like taking a bath after coming home from the market, washing clothes, washing hands for 20 seconds, wearing masks, and practising social distancing were taken to mitigate the impact of the risk.

Every coin has two sides - the head and the tail. Risk and opportunity go hand in hand, what is a risk for someone may be an opportunity for others. Some individuals or companies involved in manufacturing masks and sanitiser which are used commonly in the pandemic presented with an opportunity but for some pandemic was a big risk ex the entertainment industry, the need to wear a mask and social distancing significantly impacted their ability to operate at full capacity resulting the in the financial challenge.

What is Business Risk?

Now let’s discuss what is the business Risk. Business risk refers to the risk associated with the business. Every business exists to provide value to its shareholders. All entities face uncertainties and challenges, but the primary objective of the management is to balance these uncertainties with stakeholder value. Management develops long-term and short-term objectives based on the organization’s vision and values. The organization’s vision sets the context for strategic objectives and sustainability, addressing current business needs and preparing for the future market environment.

Ex: Insufficient security measures could result in a data breach that compromises the personal information of the customers thereby impacting the reputation of the company and causing customer migration.

What is Enterprise Risk Management?

Enterprise risk management (ERM) is an encompassing approach to risk management that takes a strategic view, considering the entire organization. It involves the top-down analysis to identify, evaluate and proactively address possible risks, hazards and threats that could impact the organizational goals and operations potentially resulting in losses.

ERM involves planning, organising, and controlling activities to minimise the effect of risk on the organization’s objective and to explore potential opportunities.

Planning involves setting short, medium, and long-term goals that align with the organization’s overall strategic goals. Objectives play a role in establishing policies and resource allocation.

The organisation focuses on the key processes that are critical for achieving the objectives and are central themes across the organization that affect the objectives.

Mapping events against the process and identifying key risk indicators (KRI) helps identify high-risk areas. KRI’s are metrics used by organizations to provide early warning signals of increasing risk exposure in various areas of the organisation.

Effective risk management is crucial for businesses to navigate the dynamics and unpredictable landscape of the modern world. Key risk indicators (KRI are vital in identifying and managing risk. We would delve into the concept of KRI, and its significance in risk management and explore attrition as an example to illustrate its practical application. KRI’s are the measurable metrics that provide the early warning signals of the potential risk. It acts as an indicator, allowing the organisation to assess the likelihood and impact of the risk in a proactive manner. By monitoring and analysing specific, KRI gives the organizations, gain valuable inputs to identify and address emerging risks