It is difficult to manage risk than it is to manage a strategy because risks involve focusing on the negative aspects as compared to a strategy that is focused on the positive aspects. A small business manager should be very keen on developing an internal risk management team that is separate from the strategy management team (Kaplan & Mikes, 2012). The first decision a manager needs to consider as the first line of defense is the organization’s goals, vision, mission, and values. The four defines the company purpose, guide stakeholders’ behavior, and define the corporate culture, hence reducing preventable risks.
The second decision for a small business manager is to analyze and understand the types of risks and their qualitative risk levels to the organization. In this case, the manager needs to know the preventable risks, externally influenced risks, and strategy risks. The manager then needs to tailor the risk management process according to each category. In his decision, he may choose to use a compliance-based approach; however, it has its limitations (Kaplan & Mikes, 2012). The manager can choose to adopt an independent expert approach to handle recurring risks at the project level. At the same time, he may decide to employ an embedded expert approach to monitor and influence the company’s risk profile regularly.
What key aspects of any approach to risk management are critical?
The key aspect of any approach to risk management is to understand the effects of the risk on the company and how it affects the company’s mission, vision, and goals. The company needs to categorize and tailor the risks into categories and use different methods to handle each group (Kaplan & Mikes, 2012). For example, external threats will require different strategies like scenario analysis as compared to strategy risks that will require the strategic planning process. That can only happen if the management has a clear understanding of the risk levels and its effect on the mission, vision, and company’s objectives.
Reference:
Kaplan, R.S., & Mikes, A. (2012, June). Managing Risks: A New Framework. Harvard Business Review, 90(6), pp. 48-60, to enhance your learning about a way to identify and categorize different risks.