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Identify, mitigate, and navigate different risks

Company building
Explainer

Understanding and proactively managing risk is crucial to a company's success, as failure to do so can lead to significant consequences, including reputational damage, operational disruptions, and threats to overall viability. By identifying key risk categories and implementing structured risk management procedures and mitigation strategies, businesses can minimise potential negative impacts and enhance long-term stability and performance.  

Risk identification

A company should continuously assess and manage current and potential risks across key areas such as below, customising and expanding its risk framework to align with industry and geographical-specific challenges and regulatory requirements.

  • Strategic: risk associated with any changes to the strategic direction of the company and the implementation of those changes. Strategic risk also arises when a business stops operating according to its business model or plan.
  • Operational: stems from inadequate or failed internal processes, employee concerns internally or externally and general P&C concerns that impact the company’s ability to carry out its day-to-day operations effectively.
  • Legal and regulatory compliance: the risk of non-compliance with applicable laws and regulations, including actual or perceived breaches of legal obligations. This is particularly critical in highly regulated industries such as the financial services, but is relevant across all sectors.
  • Reputation: the potential for damage to the company’s reputation due to adverse events, negative publicity, or ethical breaches, which can affect trust and relationships internally and externally.
  • Market: the impact of changes in market conditions, such as changes in input costs, exchange rates, interest rates, or broader economic trends that may affect business performance
  • Liquidity: the possibility of insufficient internal liquidity, which could prevent the company from meeting its short-term financial obligations and disrupt operations.
  • Systems: the risk of technological failures, cybersecurity breaches, or data security issues that could disrupt operations and compromise sensitive information.
  • Team/workforce: challenges related to staffing, including employee turnover, planned absences, and restructuring, which could affect business continuity and performance.
  • Force majeure: risks arising from unforeseen local or global events beyond the company’s control, such as natural disasters, geopolitical instability, or pandemics, which may significantly impact operations.‍

Risk management

Effective risk management ensures that risks are maintained at an acceptable level in alignment with the company’s defined risk appetite. Key components of a structured risk management approach include:

  • Risk management plan: a comprehensive framework outlining how the company identifies, assesses, mitigates, and monitors risks. This plan serves as a critical tool for reporting risks to senior management, the board, and relevant teams.
  • Risk matrix: the probability and impact risk matrix facilitates a structured and data-driven approach to risk management to assess and prioritise risks based on their likelihood of occurrence and potential impact. This data-driven approach enables companies to allocate resources effectively and focus on the most significant risks. Review the Risk Matrix Template for an example.  
  • Regular risk reviews: conducting quarterly risk review meetings with senior leadership to assess, update, and refine the risk management strategy. If high-risk factors are identified, more frequent reviews should be scheduled to ensure timely mitigation and response.
  • Risk action plan: if current risks have been identified, how to both tackle these current risks and mitigate them in future needs to be addressed. In the risk review, the leadership team should identify an action plan including timelines and relevant owners, and owners should report back on progress outside of risk review meetings and then providing further updates in these meetings.

Resources

This resource, and any guidance within it, must not be relied on as legal advice. We recommend that you seek professional advice to deliver an outcome best suited to your specific situation.

Understanding and proactively managing risk is crucial to a company's success, as failure to do so can lead to significant consequences, including reputational damage, operational disruptions, and threats to overall viability. By identifying key risk categories and implementing structured risk management procedures and mitigation strategies, businesses can minimise potential negative impacts and enhance long-term stability and performance.  

Risk identification

A company should continuously assess and manage current and potential risks across key areas such as below, customising and expanding its risk framework to align with industry and geographical-specific challenges and regulatory requirements.

Risk management

Effective risk management ensures that risks are maintained at an acceptable level in alignment with the company’s defined risk appetite. Key components of a structured risk management approach include:

Resources

This resource, and any guidance within it, must not be relied on as legal advice. We recommend that you seek professional advice to deliver an outcome best suited to your specific situation.

This resource, and any guidance within it, must not be relied on as legal advice. We recommend that you seek specific advice to deliver an outcome best suited to your situation.
This resource, and any guidance within it, must not be relied on as legal advice. We recommend that you seek specific advice to deliver an outcome best suited to your situation.

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