Mehrzad Manuel Ferdows's speech on Risk Management: What are the steps and why is it crucial to a business?
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Mehrzad Manuel Ferdows, a leading entrepreneur, advisor, and investor has given a speech at a conference held in Dubai on risk management. Mehrzad Ferdows stated that the process of identifying, assessing, and controlling threats to an organization’s capital and earnings is referred to as risk management. He added that every business or organization encounters unanticipated risks, deleterious events that can inflict the company money or cause it to permanently close.
Types of Risks to be taken into Consideration
Mehrzad Ferdows stated that there are diverse types of risks-environmental risks, legal risks, market risks, regulatory risks, and much more. Risk management facilitates the preparation process of predicting the unexpected by minimizing risks and extra costs. Identifying as many of these risk factors as possible is crucial for an organization to be more confident in its business decision-making. Furthermore, strong corporate governance principles that focus specifically on risk management can aid a company reaches its targets.
The Benefits of Implementing Risk Management
Basically, these threats or risks could stem from an ample mix of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. Risk management is of high importance to organizations. The benefits of implementing risk management include creating a safe and secure work environment for all staff and customers, increasing the stability of business operations as well as decreasing legal liability, providing protection from events detrimental to both company and the environment, providing every individual and assets from potential harm, and helping establish the organization’s insurance needs to save on unnecessary premiums. Mehrzad Ferdows pointed out that always the same steps are followed in all risk management plans to devise the overall process. These steps involve establishing context, identifying and analyzing risks, assessment, and evaluation of risks, mitigating, monitoring, and finally communicating and consulting.
Why Establishing the Context is Crucial?
Mehrzad Ferdows stated that by establishing the context organizations can understand the circumstances where the rest of the process will take place. Apart from that, the criteria that will be used to evaluate risk should be established and the structure of the analysis should also be defined. He added that establishing the risk context is one of the most crucial steps in the process of risk management. By this, a firm basis for the subsequent risk assessment will be established and allows the risk management activity to be planned and structured. Despite its importance, however, if the step is handled badly rushed, it will lead to an incomplete assessment of risks and ultimately poor-risk treatment.
Risk Identification and Analysis
Mehrzad Ferdows defines risk identification as the act of identifying negative and positive risks that impact an objective. To identify risks in a company one needs to define potential risks that may negatively impact a specific process or project. Risk reduction and risk transference are two main advantages of identifying risks in a company. It is vital to an organization to analyze the risks by determining the odds of the risks occurring as well as their consequences. The goal is to further understand each specific instance of risk and the chances of any possible impacts on the company’s projects and objectives.
Assessment and Evaluation of Risks
Mehrzad Ferdows reiterated that the assessment and evaluation of potential risks are followed by analyzing the risks. The company will then make decisions on whether the risk is acceptable and if the organization is willing to take it on based on its risk appetite. The assessment needs to be done qualitatively and quantitatively with the consequences being gauged for further mitigations.
Mehrzad Ferdows stated that the difference between risk identification and risk assessment is that risk identification precedes risk assessment. Risk identification entails what the risk is while risk assessment deals with how the risk will affect your objective. Furthermore, the tools and techniques used to identify risk and assess risks are not the same.
Risk Mitigation and Monitoring
To mitigate the risks, companies need to assess their highest-ranked risks and develop a plan to alleviate them using specific risk controls. These plans include risk mitigation processes, risk prevention tactics, and contingency plans in the event the risk comes to fruition. Part of the mitigation plan includes following up on both the risks and the overall plan to continuously monitor and track new and existing risks. The overall risk management process should also be reviewed and updated accordingly. Appropriate risk mitigation involves first determining potential risks to a project like a team turnover, product failure or scope creep- and then planning for the risk by implementing strategies to help lessen or halt the risk. By assuming and accepting the risk, avoiding or controlling risk, transference, and finally watching, monitoring, and controlling the risk, organizations can boost the risk mitigation processes. Undoubtedly, communication and consultation with external stakeholders should be taken into account to minimize any deviation possibilities.
Approaches to Risk Management
After an organization’s possible risks are identified and the risk management processes have been implemented several different strategies can be taken into consideration about different types of risks. These strategies include risk avoidance, risk sharing, risk reduction, risk retaining. Mehrzad Ferdows added that as every organization is unique in terms of its targets, the strategies they follow may differ based on possible risks they foresee.
Mehrzad Ferdows added that risk management can both be a beneficial practice and at the same time carry some limitations. Mehrzad Ferdows stated that many risk analysis techniques for instance creating a model or stimulation require gathering large amounts of data. This extensive data collection can therefore be expensive and not guaranteed to be reliable. Moreover, the utilization of data in the process of decision-making may have poor outcomes when the indicators to reflect the more complicated realities of the situation are rather simplistic. Similarly, unexpected results may come out when a decision is adopted throughout the project once intended for one small aspect. Lack of analysis expertise and time is another limitation. In the more digitalized world, computer software programs have been developed to simulate events that might hurt the company. Being cost-effective, trained personnel with comprehensive skills and knowledge are required to accurately operate these complex programs as well as being able to understand and analyze the generated results.
Mehrzad Ferdows concluded that a business that can predict a risk will always be at an advantage. A business that can determine a financial or safety risk in advance will limit its investments and focus on its finances or devises a safe way to work accordingly which is a major competitive advantage. Thinking of the business world as a racecourse, organization risk management leaders need to identify the potholes which every business on the course must avoid if they are aiming at winning the race. A small pothole may cause a detrimental slow down let alone a major pothole that the business needs to avoid completely. Mehrzad Ferdows further noticed that risk management allows businesses to act proactively in mitigating vulnerabilities in case of future incurring damages.
About Mehrzad Manuel Ferdows:
Mehrzad Ferdows is a leading entrepreneur, advisor, investor, and industrial engineering graduate from the University of Southern California.