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What is risk management and why is it important?

Posted: 22 November 2021
The importance of risk management

In a business, risk management is the process of evaluating and identifying areas of risk and threats to all aspects of the business - from revenue streams to stock management and supply chain problems.

Identifying risk is all a part of the on-going decision-making within a business. It's important for a business to carry out risk assessments on a regular basis to ensure that there is a plan of action in place in case the worst-case scenario occurs.

There are different types of risk management; from the issues a business might face on a day-to-day basis, such as cybersecurity threats, to financial trading companies who look to risk avoidance and risk control methodologies when trading in the financial markets.

Risk management is often a concern at board level and they'll likely require that different departmental stakeholders carry out risk identification to ensure that their area of the business minimizes risk as much as possible.

In large organizations, teams might be dedicated to dealing with risk mitigation so it's common to find a risk manager working across the business, specializing in risk, and providing risk management plans for the business.

Enterprise risk management can cover a lot of ground and involve a wide range of management tools and contingency plans to prepare a company for the worst-case scenario. Some companies treat risk as another project management issue and will put a project manager on the case, to work with stakeholders.

Risk management is all about the mitigation of adverse effects on the business. Where there's risk, there's potential for both profit and loss, but risk management is about looking for ways to reduce the likelihood of damage to the business.

Risk Treatment Methods

When it comes to risk, there are a number of different ways it can be handled in the workplace.

Ignore it - One method is to simply ignore risk and deal with any negative problems as and when they arrive. Business normally involves some form of risk, and it is possible to not concern yourself with potential issues until they occur. This isn't necessarily the best solution because it can open your business up to significant issues if things don't go to plan!

Mitigation - Another more pragmatic option is to accept elements of risk but mitigate it through planning and procedure.

Avoid Risk - It's possible to avoid risk all together in certain areas. For example, stopping all company travel in the pandemic and instigating a policy of working from home is a method of risk avoidance that was implemented by many organizations.

Risk transfer - You can Insure against risk. There are many insurance policies out there that can cover you against certain types of risk. This is a form of risk transfer, where the risk isn't removed or actioned against, but will cover a company if the worst does happen. Simple insurance policies such as building insurance, to cover against fire and damage for instance, is a form of risk transfer.

Employee Risk Management

Another area of a business where risk management needs to be considered is employee risk management. Sometimes this is an overlooked aspect of a business but can be very costly if problems occur. So, a proper risk analysis needs to be carried out to reduce the potential for financial risk.

Employee risk management often falls into the territory of Human Resources (HR), but other teams and individuals might become involved if there's something specific that needs to be addressed by other departmental issues and risk.

Employee risk management is often related to the potential impact and overall risk in the workplace itself. However, in the modern world, employees may travel globally on behalf of their employer, so it's common to put in place travel risk management solutions because there are a number of significant issues and risk factors relating to traveling for business.

Risk Management in Travel

If the coronavirus pandemic has taught us anything it's that there's potential for significant risk when traveling for business. Not only has business operations significantly been affected but business risks have increased and opened up companies to legal liability issues. Although Covid-19 is a fairly straight forward example of the issues in risk in travel, the problems can come from a wide range of different factors that a travel manager or HR teams need to be aware of and understand.

Issues surrounding employee health when traveling and health crisis in certain locations is nothing new. Other issues such as civil unrest, traveling to dangerous locations and even natural disasters all need to be considered when evaluating risk in travel. A business has a duty of care to its employees and to ensure that risk mitigation and risk reduction are managed effectively.

You can get insurance policies from your insurance company to cover many elements of risk, but you'll need to check carefully what is and isn't covered. For example - some insurance policies that were designed to cover risk, don't cover the risk of an employee catching Covid during the pandemic. This means it's even more important that your company manages to manage risk and have mitigation plans in place.

How Egencia Can Help with Risk Management Solutions

If you're looking to reduce your organization's risk relating to issues surrounding travel and to ensure employee duty of care, then Egencia can help.

Traveler risk management needs to cover duty of care issues across the entire lifecycle of an employee's business trip. From traveling to a location, when they're at the location and when on their way back to the office or home. If an employee is traveling on your behalf, then their safety is your responsibility. This can mean even stopping an employee from traveling in the first place if it isn't safe to do so.

Understanding Risk - The first step to creating an effective risk management strategy for travel is to understand what the potential risks are and to have a travel policy in place to negate these operational risks. Ultimately, you'll need to go through a process of identifying risks, but Egencia's tools and systems can help with this process. Once the identified risks are known you can start to work on a travel policy around the project risks.

Create a Risk Management Plan - If you don't have a risk management strategy in place, or it isn't effective, your employees might be at risk - opening your company up to litigation.

A risk management program needs to be dynamic, flexible to change when the need occurs, and also involve the employees themselves, who often have an idea of what the risks involved are. Everyone's understanding of risk is different, so a company needs to understand where that line is for the employee, follow regulatory rules, and create a travel policy that works for all concerned.

Create Effective Risk Management Policies - With Egencia, you can block travelers from booking certain locations, and even limit the number of employees that travel together. For example, by setting a limit to the number of employees that can book the same flight at any given time.

The process begins as soon as a traveler tries to book travel or accommodation in a location that has an active alert. Egencia Travel Advisory can tell travelers and teams that there are potential problems, and this can guide and educate an employee on the potential risks involved.

Educate Employees About Risk - There isn't much point in comprehensive risk management practices if your employees aren't aware of them and know what to do if a situation occurs. This means that employee training must be at the forefront of any risk management plan. Risk is a conversation that employees need to have. They need to understand what constitutes a risk and how to deal with a crisis if it happens.

Locate & Contact Employees to Mitigate Risk - The next step is to understand where your employees are when they're traveling and what risks and issues might be in their location. Being able to contact employees in real time is a key advantage of Egencia's Travel Tracker service and app. If a natural disaster occurs, or there's a chance of an unexpected problem such as civil unrest, you'll be able to contact your employees quickly, advise them to leave the area and help them plan alternative means of travel, swiftly and easily.

With Egencia, you can generate reports to provide metrics on potential issues and to find out exactly where employees are in travel, based upon their bookings, and what travel has been planned. 

Traveler Communication & Travel Support - Perhaps you're not even aware of a potential risk developing. Things can move quickly, and often the traveler themselves identify a potential risk. With Egencia, travelers can use AssistMe tool in their app to quickly contact a travel consultant. An alert will be generated back at HQ and the traveler will get a call back to help and provide the traveler with assistance.

Benefits of a Risk Management Plan

Save the company money - Risk can be an extremely costly issue and, in some cases, can even cause problems so severe it could impact whether a company can trade or not. Employing risk management tactics can avoid these potential eventualities.

Avoid Regulatory Issues - No company wants to break the rules when conducting business, but many companies have ended up on the wrong side of the law - either through their day-to-day trading, or because of areas such as employee law. Understanding the risks can avoid fines and penalties.

Reduce Litigation & Liability Problems - One risk a company faces revolves around litigation, liability, and other legal issues. You can protect yourself against these risks by understanding them, planning, and even through the use of insurance.

Improve Employee Relationship - Employee retention and improved motivation and morale can all be benefits in a company that has a comprehensive employee risk management plan in place. If an employee is unhappy due to working conditions, and this unhappiness stems from issues of safety, having a risk management policy in-place can help alleviate many of these concerns.

When it comes to risk, it is better to tackle the issues than ignore them. While many issues relating to risk can be dealt with internally, it's also useful to look to third-party providers for support. It's important to select the right partners who can help your company avoid risk.

When it comes to risk management and duty of care in the corporate travel industry, Egencia is here to help.

Contact Egencia today to learn more and request a demo.

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