In this day and age, businesses are becoming more and more competitive, utilizing all possible technological advancements that can improve their operations and organization as a whole—proving that the business landscape is only starting to get enthused.
But, with this intensity comes along the risks that they may encounter, as these are inevitable in every business. And if these risks are not addressed accordingly, it may result in significant losses not only for the business, but for the individuals as well.
Whether through minimization or downright eliminating these risks, having the right controls in place and running a risk management program have become necessities in today’s business environment to ensure their success and longevity.
Chapter 1: What is Risk Management?
Risk management is a systematic process that predicts the potential risks that your business may be vulnerable to. These risks may come in different types and forms, and be identified internally (e.g. infrastructure, process, and people) or externally (e.g. competition, regulatory landscape, and economic trends).
Regardless of the mentioned differences, risks, in general, can greatly affect the organization’s ability in achieving their objectives, as well as alter their processes and daily business operations.
For your risk assessment to yield meaningful results, certain key principles must be considered. For instance, in determining the risks, the impact it would bring about should be taken into consideration, as this is crucial in preparing preventative measures in advance.
It should also begin and end with considering your specific business objectives, which you know are anchored in your key value drivers. Conversely, overseeing the processes included in the risk management should also be carried out to cultivate a comprehensive line of attack even before risks would materialize.
From here, you can proceed with the interpretation and application, as to how your business can ensure consistency throughout the organization, and how it can empower your management to better identify, evaluate, and exploit the risks—all of which while maintaining the apt controls for ensuring proficiency of your operations and having a regulatory compliance.
If all these fundamental principles are taken into account, you’ll have an efficient risk management that would give your business the best insights. These, then, would help in directing your business toward the lasting success needed to keep pace in today’s fast-paced business environment.
Chapter 2: Why Outsource your Risk Management?
Risk management requires accomplishing a lot of processes and much more efforts are needed in analyzing all of the discovered risks.
While some businesses are capable of completing everything, deciding to take advantage of risk management outsourcing can save you time and energy—allowing you to focus on other important business matters.
Since organizations and business objectives differ from one another, risk management may vary as well.
Risks are also variable, as these can span across categories such as credit, product, liquidity, market, etc.
With an outsourcing partner, you’ll be guaranteed that your risk management is aligned with the abovementioned factors. Once everything is settled, your outsourcing provider gives you a scope on how the risks are likely to occur—based on its probability and severity.
Should your risk management assessment generate numerous issues, addressing each of them isn’t a realistic and cost-effective strategy. Knowing which risk has the highest probability to transpire and those that would produce the biggest impact should be on top of your list. Hence, prioritization is an important step in the entire risk management, and your outsourcing partner can do this for you.
Afterwards, all the findings will be compiled into a risk profile—already refined into the most important ones, which will serve as the organization’s basis in developing the appropriate response strategies, as well as properly allocating its resources.
All of these can be delivered by your outsourcing partner, as it is their job to ensure that your business objectives, the identified risks, response measures, and controls are constantly reassessed so that your risk management is an ongoing process and not just a one-time procedure.
The entire risk management system, just like any other developments, progresses and matures over time. So, outsourcing your risk management is vital for your organization’s day-to-day operations—regardless of business size to enable you to make the best business decisions possible.
Chapter 3: Guide to Choosing the Right Risk Management Outsourcing Firm
Now that we’re fully aware of the benefits of working with an outsourcer, here are the key elements that you should bear in mind when selecting a risk management outsourcing firm that you’ll be partnering with.
Of course, you wouldn’t want to waste money hiring someone who isn’t efficient, so it’s important to ask the right questions and be accurate when setting your requirements to avoid inconveniences or delays.
Ask about their past experiences in risk management. How long have they been doing risk management outsourcing? How many projects have they worked on? What were the results? How did the process go about? How was their relationship with previous clients?
This will give you a clearer view on their capabilities, how they can deliver the services you need, and what your relationship would be like, among many others.
From their know-hows, ask about the outsourcing firm’s products and services. Are their offerings sufficient in your required risk management? Are they confident that their methodologies can ensure your business success?
Knowing these can give you an insight if doing business with them can be beneficial for your organization. These should serve as an assurance that working with them can go a long way.
Obviously, costs play an important role in any business, especially those who are just starting up or have a limited budget for outsourcing. You should know how much your desired services would cost. Verify that they don’t have any hidden charges for other work such as implementation, training, testing, connectivity, transition, and many more.
Find out how they go about with their transactions, the things they consider in setting their prices, and if they have fixed cost engagements should there be no unexpected issues.
The right risk management outsourcing firm should know the importance of meeting your deadlines on time. They should provide a timeline with which all of your needs are given a deadline so as to provide a reference for the both of you.
However, these targets should be realistic and wouldn’t affect the result’s quality or outcome.
Through your initial assessment or interview with the potential outsourcing firm, you can already determine whether they’re the right choice or not. If you were satisfied with how they presented their company to you, consider it as a good indicator that they’re confident in delivering your needs.
Communication is crucial in outsourcing, as it can make or break your risk management. Aside from your personal encounter with them, learn how they interact with each other as well.
Having everything documented is a must not only in risk management outsourcing but with all the dealings you’re conducting. These documents should include everything you’ve agreed on such as terms, timeline, and payment.
Documents would serve as your basis as well, should you encounter certain issues while the risk management is ongoing or if you have misunderstandings with your outsourcing firm too.
Chapter 4: Risk Management Resources
To further your understanding of the risk management discipline, here are some resources that you can read on.
Risk Management: The Essential Guide for Fast-Growth Companies
This informative yet brief guide would help you reevaluate your existing risk management. This article includes a list of the top ten global risks, which your business should be monitoring so as to keep pace with the changing risk management landscape.
Tony Harb of the Tax and Accounting Insight for Thomson Reuters, emphasized the importance of having a risk management program, regardless if you’re running a formal or informal one. In his article, he gave a 5-item quick guide to risk management to ensure effectivity in your organization.
Risk Management in Accounting Firms: Overview of The New Australian Standards
Danger or risks are usually ignored and only given attention once it starts to cause damage. In this article, you’ll have an insight on the types of dangers that Australian accounting companies have encountered, which can be linked to the increased amount of authorized claims against skilled public accountants.
While strict regulatory controls and various financial models have been developed, human factor should never be missed by risk management. As people base their decisions on information, the manner with which they deliver it, its recipient, and how they act upon it are crucial in determining how risk management goes about. All of these are explained in Andrew Leck’s article for City AM.
IASB member, Steve Cooper, discussed how to implement a risk management with an accounting approach. Considering the difficulty of construing financial statements—a greater challenge, on the other hand, is having an entity with complex business model and diverse, complex transactions. Through this article, you’ll be able to grasp how to better understand financial statements for an efficient risk management.
With today’s evolving economic landscape, having a risk management program is important, but its success depends on your ability to run thorough assessments.
Having a risk management outsourcing firm is crucial as well, cause as your business grows, the risks you’ll likely encounter changes simultaneously. Hence, your processes for managing these must adapt to all the developments transpiring in the entire business environment.