Eighty-three percent of business strategies focus on growth despite facing significant risks and mixed economic signals. Unexpected market shifts, global economic downturns, technological advancements and other rapid changes present potential risk for any business. And since you can’t completely eliminate risk, knowing how to properly manage it can help you guide your company to long-lasting success and resilience regardless of external circumstances. So, what is risk management? How can you anticipate potential challenges and implement strategies to prevent or mitigate their impact?

What Is Risk Management?
The Importance of Risk Management
Different Types of Risks to Manage
The Risk Management Process
4 Common Responses to Risk
Risk Management Best Practices

What Is Risk Management?

Risk management is the process of identifying potential threats that could negatively impact your company and then taking proactive measures to minimize or eliminate those threats. As a governance, risk and compliance (GRC) professional, you are tasked with two primary responsibilities: risk assessment and risk mitigation.

Your company expects you to assess its overall risk profile and prepare appropriate prevention measures. You help your organization decide how much of the identified risk it should accept, reject or transfer and subsequently take steps to mitigate a risk’s impact. (Fortunately, the right risk management software can help you simplify risk oversight and control.)

The Importance of Risk Management

Too often, organizations treat risk management as a compliance issue. They draw up many rules and ensure all the employees follow them. While such rules are sensible and do minimize some risks that could severely damage a company, the right approach to risk management offers additional benefits.

Upholds a Company’s Reputation and Consumer Trust

Typically, management of risk protects a company from threats that can compromise its reputation. But if your business relies on brand reputation to maintain a competitive advantage, risk management becomes even more critical.

For example, finance, healthcare and tech companies heavily rely on consumer trust. A data breach or compliance violation can erode credibility and have significant financial and legal consequences.

Take Change Healthcare, for instance. This key player in the U.S. healthcare infrastructure experienced a cyber attack in 2024, compromising the information of over 100 million people. The company not only lost an estimated $3.1 billion responding to the attack but also took a hit to its reputation as a trusted healthcare tech provider that prided itself on secure data processing. While Change Healthcare is staging a comeback, the incident shows how mitigating risks can make or break your company.

Protects an Organization’s Financial Health

At its core, risk management’s purpose is to prevent major financial losses. Yet, every risk type bears financial consequences for a company:

• Legal and compliance risks lead to hefty fines and regulatory penalties.
• Technological and operational risks disrupt production, causing delays, cancellations or lost revenue.
• Reputational risks erode customers' trust, driving away customers and investors.

If you can anticipate and assess risks, you can prevent or control economic loss triggers.

Supports Data-Driven Decision-Making

Beyond preventing losses, risk management helps establish decision-making frameworks within your company. These frameworks are especially useful if your organization tends to face difficult-to-manage risks.

When you pull data from the company’s existing control systems, you can develop hypothetical scenarios and discuss the effectiveness of strategies before executing them.

For example, Chase Bank is a banking giant susceptible to cyber risks because it handles vast amounts of sensitive customer data. As a risk management measure, the company uses technology like AI and machine learning to detect, prevent and mitigate cyberattacks. This risk mitigation approach provides data-driven insights that help Chase assess vulnerabilities and refine security strategies.

Different Types of Risks to Manage

You can draft strategies to manage common types of risks.

Strategic Risks

Strategic risks are integral to your business’s performance and growth. These risks relate to issues that could affect your company’s ability to execute its strategic objectives and reach its business goals. Strategic risks also impact your company’s competitive advantage in the market.

For example, Kodak, once a photography giant, faced strategic risk when it failed to embrace digital technology. Although the company invented the digital camera in 1975, it hesitated to adopt it, fearing it would cannibalize its highly profitable film business. As competitors like Sony and Canon capitalized on the digital shift, Kodak’s market share eroded. By the time it attempted to adapt, it was too late — consumer preferences had changed, and the company filed for bankruptcy in 2012.

Geopolitical Risks

According to the US National Intelligence Council’s report, geopolitical risks will create more challenges in the next two decades. This trend stems from competition for global influence, which will likely reach its highest level since the Cold War. Trade disputes, international sanctions and political instability are more likely to cause:

• Supply chain disruptions
• Regulatory changes
• Economic shift
• Fluctuations in market stability

All these factors can ripple through industries and affect company performance, operations or people.

Consider, for instance, how the conflict in Ukraine has impacted economies and sanction regimes across the European Union and the United States. Such risks call for consideration of how global events can quickly challenge your organization.

Operational Risks

Operational risks are threats of loss caused by faulty internal processes, systems or people that can disrupt your company’s operations. These risks include:

• Equipment failure
• Third-party vendor defaults
• Supply chain disruptions
• Tech risks tied to automation, artificial intelligence and robotics
• Workplace safety risks

To manage operational risks, consider every aspect of your business objectives and address potential weaknesses in your company’s staff, systems and internal controls.

Legal and Compliance Risks

Legal risks are potential losses from failure to adhere to laws, regulations or contractual obligations. These risks often fall into two main categories: contract and litigation risk.

Contract risks occur when one party fails to fulfill its contract obligation. Examples include not delivering goods or services on time, breaching the contract agreement, or not meeting specified quality standards. On the other hand, litigation risks arise from potential lawsuits against an organization. The risk could stem from employee relations issues, contract disputes, customer complaints or faulty products.

Your work is to identify potential legal pitfalls in advance to prepare and protect your company against monetary and reputational risks. Fortunately, you can use regulatory change management software to automatically track relevant regulatory changes and update your risk management plan so you remain compliant throughout.

The Risk Management Process

Risk management processes will vary from one company to the next, depending on industry regulations, organizational structure, risk appetite and the complexity of operations. However, there are some basic steps your risk management team will want to consider:

Step 1: Identify the Specific Risks Your Company Faces

Start by conducting a root cause analysis to identify risks to which your company is exposed. Because of the interconnectedness of business processes, an immediate risk often points to a bigger root problem. A root cause analysis will help you identify the parent risk so that you can suggest specific measures to protect your company.

Step 2: Assess the Probability of Risk Occurrence and Potential Outcomes

Next, examine relevant data to establish risk probability and potential outcomes. Internally, analyze your company’s controls, regulations and business continuity and disaster recovery plans. Besides, depending on your industry, review risk frameworks such as HIPAA, ISO 27001 and NERC to assess a risk’s severity accurately. Based on your risk analysis findings, categorize risks in terms of severity and probability of occurrence.

Step 3: Design a Mitigation Plan To Minimize Risk Exposure and Occurrence

Having determined potential risk events and their probability of occurrence, you can design an appropriate mitigation plan. This step might include contacting relevant experts and stakeholders to discuss the mitigation strategies.

For instance, if you find there’s a high data breach threat in your organization, your mitigation plan would include data breach prevention strategies such as applying layered security measures and designing an incident response plan.

Step 4: Monitor Your Risk Management Plan and Make Necessary Adjustments

You can’t eliminate all risks — some will always be present. So, the best practice is to monitor risks and make necessary adjustments continuously. A good example of a risk that requires proactive monitoring is compliance risk, as regulations and industry standards are constantly changing. You want to stay up-to-date with relevant regulatory changes and industry trends to future-proof your risk mitigation plan.

Step 5: Develop a Status Report That Summarizes Your Organization’s Risk Profile

Finally, create a status report that quickly explains your risk management plan and how it complements your company’s risk profile. Such reports illustrate the effectiveness of your risk management strategies and rally stakeholder support. This step is crucial for justifying your company's capital expenditure to implement risk management strategies and making a case for additional resource investment.

4 Common Responses to Risk

How your company responds to various risks depends on the risk’s impact:

1. Risk Avoidance

When is risk necessary? In the Kodak example we discussed earlier, risk shouldn’t be avoided. However, that isn’t always the case. Sometimes, avoidance is the only viable option when the threat is too significant. That means you need to address some risks with zero-tolerance policies because of the catastrophic consequences they pose.

You can choose risk avoidance when:

• The risk is catastrophic and could lead to permanent closure or bankruptcy.
• The potential benefit doesn’t outweigh the possible losses.
• You operate in a highly regulated industry with difficult-to-calculate and exponential risks.
• The risk threatens compliance with critical laws and regulations.
• Alternative strategies can achieve similar results without exposing your company to major threats.

2. Risk Reduction

The goal of risk management should be to minimize risk thresholds to an acceptable level rather than stopping or avoiding a risk event. If avoiding risk isn’t an option, your company should tolerate a certain degree of potential loss or uncertainty while taking steps to reduce the severity or likelihood of the threat. Risk reduction contains risks within acceptable limits while you achieve the company’s goal. This strategy is appropriate when the risk cannot cause prolonged harm, and your company has a clear game plan to reduce threat impact.

3. Risk Transfer

Your company can delegate some risk liability to a third party, such as an insurance company. You enter a contractual agreement in which you pay premiums or deductibles for a third party to assume liability for the agreed-upon risk occurrences. Alternatively, you can transfer risk to business partners who are in a position to manage the risk using contractual risk transfers effectively.

The risk transfer strategy is appropriate when the financial impact of a risk is too high to bear alone or regulations and industry standards require insurance coverage.

4. Risk Acceptance

Operating with zero risk is impossible. Avoiding all potential threats might seem safe, but it would stagnate and eventually kill your company. Accepting you’ll always have some unforeseen risk events keeps your company’s risk management plan agile and dynamic. You can adopt this risk management strategy when:

• Risk avoidance is impossible, or a risk is inherent to the nature of the business.
• Risk avoidance efforts aren’t cost-effective and could hinder business growth or impair competitive advantages.
• Risks are manageable.

Risk Management Best Practices

While most risk techniques vary depending on the company and industry, here are a few tried-and-true risk management best practices to consider:

• Implement risk accountability for every stakeholder to create a risk-aware culture in your organization.
• Execute regular risk assessments to keep your company’s risk profile up to date and ensure the executives have the most current information before they make decisions that would impact your company’s risk profile.
• Categorize and prioritize risks based on their probability and potential impact so you can focus your risk management efforts where they matter most.
• Implement the appropriate risk management tools, controls and metrics to help with proactive management.
• Use technology specifically designed to manage risk because all risk programs eventually outgrow simple documents and spreadsheets as a means of managing and monitoring increases in complexity.

Turn Risk Management Into a Strategic Advantage with Onspring

Risk management is certainly complex, and if you’re manually managing your processes—mapping your company’s risk profile, assessing the risks, tracking regulatory changes, monitoring third-party risks and maintaining audit trails—it can be even more difficult. With Onspring’s risk management solution, you can leverage automation to register and surface risks, categorize them and make fully informed decisions about mitigation strategies.

Request a demo today to find out how Onspring can simplify your risk management processes.