Risk Management Objectives and Tasks

Actions and decisions of managing entrepreneurs determine the daily work routine. Since it is seldom predictable what effect these actions will have, the management often takes a risk. Risk management is used to keep this risk as low as possible. This means that measures are taken to identify, analyze and control the risks. In the best case, the risk is controlled by the actions taken to avoid the risk.

Risk Management Objectives and Tasks

Prevention or Avoidance of Risks

Managing different types of risks

Risk management is the generic term for all activities that are used to reduce or avoid risks. The risks that can affect a company come from many different sources. For example, financial crises trigger risks in national and international financial transactions. Due to the ongoing climate debate, sound environmental risk management is becoming increasingly important. In addition, companies have to deal with logistics risks, technical risks and other risks.

A company can only cope with the variety of risks if it takes appropriate measures to avoid them. ISO 31000 from 2009 makes it a management task for those responsible to ensure the appropriate use of measures to avert all risks for their company. In addition, authorities such as the German Federal Financial Supervisory Authority (Bafin) have set minimum standards that a company must comply with if it implements risk avoidance measures.

The aim of sound information management is to ensure that a company is supplied with important information as digitalization and globalization increase. A company needs this information, for example, to make important investment decisions.

In order to comply with legal guidelines, many companies use engineering software. This software supports the measures to reduce and avoid risks.

Possible applications in the company

Good risk management is applied where it is needed. Information management uncovers the sources where risks may arise. In a company operating in the chemical industry, for example, environmentally hazardous substances must be disposed of properly. Due to changes in legislation and the environmental awareness of citizens, this company is exposed to the constant risk of violating applicable law.

Another example is the increasing digitalization of internal company processes. Companies run a potential risk with the software they use if this software is not adequately maintained. In addition to engineering software, risk management software and risk analysis software can also be used to keep risks in this area at the lowest possible level.

Risks occur in the area of material procurement and logistics because a company is dependent on suppliers. A car manufacturer cannot complete a car on time because the tyre manufacturer has supplied the wrong tyres. To eliminate this risk, a functioning communication is the best basis. This risk can be minimized with the support of suitable engineering software.

Individualized early warning system

Risk management is to take on the function of an early warning system. The task of risk avoidance is not a one-off matter. The task and objective of the measures must be interlinked in an ongoing process. The process passes through the following phases:

  • Identification of a risk
  • Risk analysis: The analysis focuses on the probability of occurrence and possible effects on the company.
  • Evaluation of the risk and taking appropriate countermeasures
  • Risk monitoring
  • Monitoring of all processes related to risk identification

In addition to a risk management plan, each company should maintain a risk management record. Among other things, the risk management report is recorded here. This serves to monitor and verify whether the plan to reduce or avoid corporate risks has been adhered to.

Secure business decisions

Sound risk management is the best foundation for sound business decisions. In addition to information management, the company can use other methods for risk assessment.

For example, the FMEA method is used here. The Failure Mode and Effects Analysis is widely used in the automotive industry. However, it is also used for medical devices and other technical systems.

The HAZOP method has become established for safe business decisions in the chemical industry. It is used to detect control and development errors, which are partly due to ageing machines.

Engineering software provides support in this area. It ensures the optimal use of the methods and controls their results.

Risk management as support for a successful corporate strategy

Strategically applied risk management helps to ensure that risks are identified more quickly and that the top strategy of corporate management - maximum business success - is never jeopardized. If a risk can no longer be reduced or avoided, a consistent solution must be found to incorporate the risk into strategic considerations. If a company manages to install a system that takes into account the handling of all risks, it will gain a competitive advantage.

The building blocks of a functioning system for risk identification and risk monitoring are information management and engineering software.

Advantages of a risk management software

In addition to engineering software, risk analysis software also supports the planning and introduction of a risk management system.

But the use of engineering software brings even more. All management tasks for risk avoidance are taken over by the software solution and executed optimally. Possible risks are immediately recognized and analyzed by the software. After a thorough evaluation, the software is suitable for monitoring and controlling the risks. The best case is achieved when the software is used in a way that controls the risks.

Entrepreneurial actions trigger risks because the result of the actions is not always predictable. To manage the various types of risk - e.g. environmental risks, technical risks, risks in the procurement and logistics of materials or software risks - appropriate measures must be taken to keep the risk as low as possible. 

Well-organized risk management is the best way to avoid risks that could jeopardize strategic planning. In addition to an implanted information system and a detailed risk management file, a software solution also offers an alternative for identifying and managing risks.

If engineering, risk management and risk analysis software is used in a company, the company does not only benefit from quality assurance. If risks are identified in good time, costs can be avoided that were not included in the budget planning. Therefore, a functioning risk management is the best basis for the company's success.