An Introduction to Risk Management

By Emmy Pirkko-Muandingi
February 2014
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Risk is one of those words that is easily said and often heard of in any conversation whether formal or informal, such as “it’s risky” or “I won’t risk it”. Worldwide organisations, whether big or small, private or public, profit or nonprofit making face different types of risks which can cripple their operations or even threaten their very existence.

 

Therefore knowledge on risk management enables organisations to identify and act upon potential threats and opportunities for an organization. In all types of business either transactional or operational there is a potential for events and consequences that will have both positive and negative impact to the growth and success of the organization. Management and shareholders should keep abreast of risks and its consequences in order to act timely and appropriately with the overall aim to maximise company profit and growth.

 

Risks are normally associated with negative effects, however organisations are created and thrive on risk. Without risks there will be no new developments or new discoveries, hence organisations should not only focus on eliminating risks entirely, but on managing the risks within the organisations accepted risk desires. Through risk management, organisations will decide to either mitigate, transfer or monitor existing and potential risks.

 

Risk Management is not only applicable to businesses but to individuals as well. Individuals assess and manage risk through insurance policies such as life cover, funeral cover, car insurance and study policies just to mention a few.  The reason people invest in insurance is to have assurance that in an eventuality risk exists it is properly taken care of by the insurance company. Risk management is not a new term in Namibia, because before you take out an insurance cover you first assess your personal risks that will determine the nature of policy you may require.

 

Risk is primarily brought about by external or internal factor or a combination of the two which is further categorised into different types of risks such as strategic, operational, financial, hazard risks etc. Risk management also has a role to play in the governance of organisations and the ethical behaviour of management and staff. Therefore, organisational behavior has a direct impact to the reputation of the organisation that serves as a motivating factor in attracting potential investors in the organisation. Reputation, financial, cyber, political, environmental, compliance, competition, natural disaster and health related risks such as pandemics are some of the most common risks currently experienced elsewhere according to world reports.

 

Namibia is no exception as it has been reported that the country is recovering from last year’s drought which pauses a great risk to livestock and crop production countrywide. Due to the severity nature the government had to intervene in order to mitigate all the risks involved. The beginning of 2014 was greeted with the outbreak of Cholera in the Kunene Region posing a health risk to all residents of that region. Therefore the mitigating factor employed by the government was to isolate the infected people in order to contain the disease from spreading across other regions and become a national pandemic. This is what risk management is all about.

 

Organisations and individuals must be prepared for any eventuality because when disaster strike it does not always give prior warnings hence may be difficult to manage. A practical example is what happened to some businesses at Maerua Mall when the storm in mid January caused flooding in some parts of the newly extended part of the mall forcing temporary closure of some of these business outlets. These are some of the scenarios that should be considered when conducting organisational risk assessment to ensure risks of such nature are properly contained.

 

Research has shown that cyber risk has been on the increase prompting governments and multi-national companies to take drastic measure to ensure information security. Namibian companies and individuals are also at risk especially in the era of Facebook, Twitter, Instagram, Badoo, internet banking and other social sites were personal information is loaded with no security guarantee. It is common that information can be downloaded and used without the consent of the owner. Therefore, it is imperative for business owners and individuals to assess the risks involved in any activity or business deals that you undertake.

 

Currently most institutions still manage risk in silos focusing mainly on financial and IT risks. Emphasis is placed on institutions to start implementing Enterprise Risk Management (ERM) in managing risks that may affect institutions either positively or negatively. This will enable institutions to have a holistic picture and approach to risks that spill over to other sectors or departments and implement effective control measures to mitigate the risks. PF