Identifying Risks and Opportunities in Risk Management

For companies it is not possible to completely exclude risk in daily business. But it can be minimized: Risk management identifies, examines, evaluates and, in the best case, manages corporate risks. The aim is to avoid recalls and damage to the company's image, while at the same time generating an acceptable profit for the company. Here, software is of great help.

Identifying Risks and Opportunities in Risk Management

Keep an overview with software

Risk management is primarily concerned with identifying strategic risks, market risks, default risks, compliance risks and risks associated with the provision of services (operational risks). These should then be examined for possible costs or other consequences for the company. The results can then be used to develop a strategy to minimize negative consequences for the company.

The main methods of risk management are risk analysis, risk aggregation, risk response and risk monitoring.

Risk analysis

In the risk analysis, the most important individual risks are identified and subdivided according to risk areas. It can be used to find out how likely a certain risk can occur and what its effects may be. This is done by analyzing the probability of the risks. It can be helpful to use historical data for orientation. The frequency distribution from a Monte Carlo simulation, which deals with the extent of possible deviations from the plan, also plays a role.

Risk aggregation

When aggregating risks, the risk of the entire company is taken into account. One calculates the equity or liquidity requirement and takes care of covering possible losses (value at risk).

Risk response

One can avoid or reduce risks. To this end, the amount of loss can be limited or the probability of occurrence reduced. It is also possible to transfer risks to insurance companies or the capital market by concluding appropriate contracts with customers and suppliers. In order to be able to react in time, forecasting and early warning systems should be used.

Of course, additional costs arise from insurance cover or redundant machines. Therefore, a cost-benefit analysis should be carried out to see whether it is worthwhile to completely exclude a risk or whether it is better to just minimize it. The PDCA cycle (Plan-Do-Check-Act) based on quality management is often used.

Risk monitoring

Over time, risks can change. It is therefore important to constantly monitor developments so as not to lose track. The responsibility of the respective areas should be documented.

Advantages of a risk analysis software

A risk analysis software can help to minimize the risk for companies and businesses. You can improve the quality of your forecasts by using data management. This way losses can be kept to a minimum. The risk management software records incidents that may play a role for the company. It is also possible to check the effects of possible corrective measures. In this way you can always keep an eye on the performance of the company or business.

Regulations can also be better observed with the help of risk analysis software. Both occurring and theoretical risks can be included. This enables the company to react better. Essential for risk analysis software are business intelligence and exception management. There is also financial risk management software and compliance management software that can be similarly helpful.

Use in the company

The risk manual or risk guideline serves as a summary term for all documentation dealing with risk management. In addition to process and methods themselves, the term also refers to the organizational unit of a company that takes care of them. These include, on the one hand, the operational staff and managers, who are expected to react appropriately when a problem arises. There is also risk management in the narrower sense which includes the task to support the employee in avoiding risks. To this end, these risks are considered and methods and tools are specified. Management prepares risk information for the management of the company. The compliance system and controlling are also included. The third "building block" is internal audit. It monitors risk management activities. For these actions a risk analysis software can help to consider all essential points and to recognize connections.

Risk Management File

Risk management must be documented in the company. For this purpose, a risk management file is created. This records all the main activities of the risk management process and its results. The risk management file is mainly prescribed in the medical field. It shall include information on the scope of the plan, describing the medical device and the stages of its life cycle. Essential is the allocation of responsibilities within the company, how risk management activities are evaluated and which criteria apply to acceptable risks.

Important guidelines

The German Act on Control and Transparency in the Corporate Sector (KonTraG) of 1998, together with the IDW standard for the audit of the early risk detection system pursuant to Section 317 (4) HGB (IDW PS 340), which is based on this Act, is the most important basis for defining the requirements for risk management acts. It is required that the management board of a company must ensure that a monitoring system is in place. Its purpose is to " at an early stage to identify developments that could jeopardize the continued existence of the company" (Section 91 (2) of the German Stock Corporation Act).

A company must identify risks regularly and systematically and evaluate them. Risk aggregation is also essential. It can help to early on identify developments that could endanger the existence of the company. The interaction of individual risks must be identified.

A company must be able to provide "appropriate information" for its decisions in order to be able to include possible risks in its decisions (Business Judgement Rule; § 93 AktG). Other key components are regulations on risk reporting (German Accounting Standard, DRS 20) and industry-specific risk management regulations (for example for banks or insurance companies). Important international standards are the COSO Enterprise Risk Management (COSO ERM:2017), the risk management standard ISO 31000:2009 and the quality management standard ISO 9001:2015.

Minimize risks

It is important to keep risks to your company as low as possible. Risk management software can be a valuable support in this respect. Since there are many points that need to be considered, risk analysis software can help you to keep track. In this way, tools can help companies to ensure quality and save costs.

Sources: - Risikomanagement - Risikomanagement & ISO 14971