I will like to thank Mr Steven Ng Liang Hwi who has gave me much inspiration for this post. Your input as a risk manager in your company is a great learning lesson for me too.
Have you ever wondered what the risk management department in your company does? They seem to disapprove many of your initiatives or create many unnecessary red tapes before you can push your idea through. Why are they being so narcissistic about new ideas and initiative? Don't they realise the amount of productivity/ sales/ bottom line that will be increased if this initiative is passed through?
Well that is the job they do. They have a system called a Business Impact Analysis, they look at the company as a whole, find out all possible risk that may affect the company. Put a figure to the possibility of the risk happening. Put another figure to the impact of the risk if it happens. Put these figures into a software which will calculate whether the risk is big enough to mitigate it.
For example, if the risk is not probable and will not impact the company they may choose to neglect the risk as the impact to the company is negligible. But if the probability of the risk is high and the impact to the company is high then they will have to adopt one of 4 strategies to mitigate this risk.
Therefore when you decide that you have a great idea and initiative that will greatly benefit the company, you have just created another risk for the risk department. They will have to go through the whole process of finding out all the risk that is associated with your idea; Put the figures in to the software for the probability of the risk happening. Calculate the financial impact of the risk happening. Then decide which risk they want to take and which they do not and on and on and on. By the time they say ok, the fire in your belly for the idea has extinguish.
The Strategies to Mitigate Risk
So now lets say your idea is fantastic and risk department has identified the risk and wants to mitigate it. There are 4 strategies and these are to:
1) Accept the risk,
2) Avoid the risk,
3) Reduce the risk, or
4) Transfer the risk
Lets look at each strategies individually. Lets assume that one of the risk for a company is working at height. If a company Accepts this risk, they will just get workers to work from height without safety gear and accept the fact that if a worker fall they will cover the bills and liabilities that come with it.
If they assume a Avoid risk strategy, they will not take jobs that is too high. They will only jobs that have no heights thus limiting the jobs they take and limiting their income.
The above 2 strategies are totally impractical as accepting the risk creates too significant an impact to a company happens if something happens.
Therefore, the 2 practical approach will be Reduce and Transfer. Risk reduction for the above example will be for company to ensure safety gears are used. Safe standard operating procedure are in place. Penalty in place for flouting of safety guidelines. These will help the company reduce the risk while working from heights.
But reducing risk is only one strategy and does not ensure that accidents don't happen and most companies will adopt a risk transfer strategy as well. They buy insurance that will transfer the financial risk to insurance companies thus ensuring that liabilities resulting from an accident does not affect their profits or savings. They transfer this risk by paying a small portion of their total liabilities in premiums for a substantially bigger payout when an accidents happens.
So what lessons can be learnt from a business? Are we running our family like a business? Are we exposing our families to unnecessary risk without mitigating them? How can we do a Family Impact Analysis?
Stay tune for the next post!
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