The executives know that they are facing the risks that threaten their business operations. However, the initial risk mitigation failures that they have been doing all this time is not knowing whether the risks are real or not.
It is unfortunate knowing that the purpose of risk management is actually to prevent any potential issue, handle problems that are happening, and help companies in making decisions. If risk management is taken impractically, the company’s existence could be in danger.
So, to prevent such things from happening, we have summarized some of the risk management steps that often times are not taken seriously:
Incompetent leaders often become risk mitigation failure factors. You can sense this problem when the executives ignore or deny bad news that denotes their strategy is wrong or doesn’t work.
Moreover, another sign that your leaders are not working as they should is they don’t let the other members of the management contribute to the strategy and policymaking.
There are some steps that the management take to prevent failures due to incapable leaders:
- Assess how risk mitigation management is set up and make sure that the policy structure, accountability, and problem reporting protocols are on track.
- Directors should watch for the red signs such as business strategy that doesn’t work properly, performance pressure, incompetent executives, unhealthy internal competition, and excessive focus on short-term goals.
- Management should prepare for broad knowledge when they are about to enter a new market so that both the management and the board can communicate it well.
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Inability to implement Enterprise Risk Management (ERM)
The result of risk mitigation planning is ERM. However, another problem can arise because of improper ERM execution. You can sense this problem by seeing how minimum the support given by the management. They also don’t delegate the right person to work on certain plans.
In order to prevent that, the management should encourage the senior executives to redefine the importance of risk management. Together with them, ask the question: What are the risk priorities and how do we handle it? Then, monitor all business operations closely and focus on aspects that need improvement.
Trusting quantitative data only
There is a mindset that says, “If you can’t measure it, then you can’t manage it.” Although it is true, you can’t apply this to all contexts. Many managers use this mindest as an alibi when they don’t do anything about arising issues because they “can’t measure it”. This type of management usually can’t even tell the difference between data and information.
The management should have analyzed the data correctly so that it can be useful information for the decision-making process. Furthermore, management must:
- Identify risk priorities and look for available data and information.
- Look for additional information to develop Key Risk Indicators (KRI).
- If no information readily available, evaluate the Key Performance Indicator (KPI).
- Communicate all risks that are difficult to quantify or lack confidence in the existing plan.
Not integrating risk management with real-time data
Troubles can emerge because of improper strategy formulation and being unrealistic. Thus, the management can’t implement the ERM that has been created because it’s not targeting the right objective. You can detect this problem from:
- The management’s response to the current issues is not aligned.
- No connection between risk management with business operations.
- No alternative solution or sudden mitigation plan for no concrete reason.
To avoid this costly issue, the management should at least implement a program that can integrate one business operation with the others. The company must have access to real-time data and communication platforms. Therefore, strategic planning, risk management, and business performance can synchronize well.
Ignoring dysfunctionalities in the organization’s culture
Organizational culture has a great impact on risk prevention and potential issue identification. If the organization’s culture is unhealthy, there are some signs that usually show up.
For example, you can see that business operations are not functioning correctly. There are also conflicts of interest, unrealistic targets, or imbalance in risk management responsibility.
The problems in the organization’s culture management can be very challenging, but manageable. The first thing to do to avoid this by distributing the responsibilities of risk management fairly. Secondly, discuss all risks and opportunities that the company faces. Finally, make sure that everyone is aware of the sanction if they are subjected to policy violations.
Those are the main indicators of common risk management failures in companies. If the management can successfully avoid all of the points above, they can surely check the health and the preparedness of the company’s risk management plan.