Importance of Implementing Enterprise Risk Management

Importance of implementing Risk management events

1.     risk and return

Before getting into the topic Risk management, it is necessary to remember that any business activity necessarily involves risks. The magnitude between the gains and the risks are directly proportional. Therefore, the greater the expected gains, the greater the risks involved. Entrepreneurship is the search for a balance between return and risk, avoiding very high risks in order to seek continuous and sustainable return.

The term risk is usually linked to events that can happen and that have a negative impact on the activity performed. In the business world, the concept has been modified to identify and measure that event that can happen.

2.     Risk categorization

in the process of Risk management, two main criteria must be adopted in its categorization: People, as agents of potential risks and image, as the consequence of the acts performed by the agents. The lack of process documentation can cause a lack of synergy between employees, generating several types of risks:

·         Reputational, where the company's image can be jeopardized by misuse of resources or poorly designed marketing attitudes.

·          Market risk, where the company's market position can be harmed by the poor execution of operational and administrative tasks, spending more resources than necessary

·         Financial risk: risks related to poor financial planning, which can put the company in financial insolvency.


3.     Risk assessment

For risk assessment, it is necessary to define the level of exposure to which the company is exposed to risk. At the risk management, this level of exposure takes into account the probability of the risk happening, together with the amount of probable economic-financial loss that the company will suffer from the event of the risk.

4.     Risk measurement

The measurement of risks is fundamental for the evaluation in a process of risk management. The measurement process involves projecting the business budget by area, paying attention to market projections and trends. The areas mapped with possible risks are projected the risks by category, using criteria of possible operational, reputational and financial risks.

5.     Risk treatment

By adopting the Risk management, the company must pay attention to its main measures: Avoid it, or accept it. By avoiding risk, the company does not participate in any gains associated with risk, which can be beneficial or harmful, depending on the amount of return and associated risk. By accepting the risk, the company takes on board that the risk exists, maps, measures and categorizes it, aiming at a sustainable return allied to that risk. This can be done in the following ways: retain, reduce or share.     

·         Retaining risk means keeping the level of risk and return proportional, at acceptable levels, through standardization of actions and analysis of the area or type of business.

·         Reducing means making the risk lower, taking into account that the expected return is below the risk taken.

·         Sharing means spreading the risk, diluting the risk with other companies and also sharing the expected results.


6.     Benefits of implementing a risk management method

The adoption of the method of Risk management can bring numerous benefits to the company that adopts it, of which we can highlight:

·         It promotes greater transparency of the company, bringing more credibility in the market, adding market value.

·         Improvement of the company's organizational standards and culture.

·         Prevention of systemic risks and identification of faulty processes in operational and administrative activities.

·         Improvement of financial ratios, by making the most of resources, increasing the company's efficiency and effectiveness.

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