The Element of A Risk
How much risk are you willing to take as an organization? On one hand, taking a risk can make all of your wildest dreams come true. But on the other, you can lose it all just like that. That is the most interesting thing when it comes to being a successful CEO of an organization. Especially when it comes to the tech world. The idea of becoming the next Jeff Bezos or the next Elon Musk can be exciting, but how many times are you willing to fail to make your dreams come true? Risk-takers getting rewarded Risk is the possibility that a loss may occur in an organization. Creating weaknesses that could be damaging to an organization’s system. Organizations create risk management teams to identify, assess, and prioritize risks. To minimize risks, organizations must also have a good corporate governance strategy. Governance is the organizational structure of management that can contribute to the success or decline of an organization. Within this strategy, organizations establish regulations, laws, and standards for their business. Governance is the organizational structure of management that can contribute to the success or decline of an organization.
A risk perspective helps influence the way a business evaluates its risk. These perspectives affect the actions an organization may take regarding its risks. It allows companies to efficiently balance their business objectives by expanding its risk appetite without exceeding their risk tolerance. Risk appetite is the amount of risk an organization is willing to take while perusing its long-term objectives. Some of the factors that can affect a business risk appetite are competitors, financial stability, and company culture. Organizations should always regularly evaluate their risk appetite. “It’s always a good idea to assess risks against risk criteria periodically or continuously (e.g. once or twice annually, or daily in specific risk scenarios), depending on the circumstances, available resources, skills, technologies or systems” (Manoukian).
A key element to an organization’s framework is its risk tolerance. Risk tolerance states that an organization is not willing to go any further than the maximum amount of risk. The approach to making risk-based decisions are analyzed both qualitatively and quantitatively. For consistency regarding risk management, organizations must accurately determine their risk tolerance strategy. Information concerning risk tolerance strategies must also be thoroughly communicated to both risk managers and decision-makers within the organization. Proper communication involving all parties creates the opportunity for risk aversion. Risk aversion is the proper decision making when a person is faced with uncertainties. For example, say an individual is trying to lose weight. When going grocery shopping, he/she will notice quite a few unhealthy items that interest them, but he/she makes the right decision to purchase healthy items, staying on track of their diet.
Inherent risks, risks that exist before any actions have been put into place. The amount of risk that is present in the absence of controls. For example, the National Football League (NFL), is looking to start up their season amid the Coronavirus. The organization knows one of the inherited risks is that coaches and players involved can contract the virus. While Residual risks are the risks that remain after the proper percussions were taken. For example, the NFL is introducing face shields that attach to the player’s hamlets to protect them from contracting the coronavirus. The residual risk that remains after precaution is taken is that people can still get the coronavirus.