Modern-day businesses face various risks to their day-to-day operations. For example, a company’s network may be hacked, compromising employee, and customer data. Natural disasters such as hurricanes, tornadoes, IT security threats such as malware, accidents and wildfires can also impact an organization’s ability to operate. Ensuring the safety of a company and its employees is about more than being able to react quickly to a threat. Effective risk identification and management involves preparing for a threat before it happens.
Late 2019 the COVID-19 virus hit China and spread across the whole world. Due to undercalculation of the power of COVID-19 it made the world to relax resulting in it being a pandemic. COVID-19 has caused havoc in many economies as well as led to the closure of companies, downsizing and unemployment. The negative effect that has been done to companies could have been avoided or reduced if proper risk identification would have been made properly.
To ensure business continuity in relation to the current situations surrounding the world there is need for an effective risk identification team in every organisation so as to be able to put preventative measures as well as being able to mitigate the impact and other risks that may come with the business. Risk identification is the process of determining risks that could potentially prevent the organisation from achieving its objectives. A risk is anything that could potentially be encountered that would negatively affect the achievement of project objectives. Risk identification begins with understanding the underlying factors that contribute to risk and is an ongoing process throughout the life of the business. It includes documenting and communicating the concern.
Risk identification is not being properly done by management as this is evidenced by the unpreparedness of many companies when a risk hits the company. Un dare consequences are being suffered by companies due to the failure of management to tackle and identify the risks that come with running a business. Executive management’s “tone at the top” provides a vital foundation for the transparency, openness and commitment to continuous improvement that are so necessary for effective risk identification. However, the tone at the top must be complemented with an effective “tone in the middle” and this will lead to an effective risk identification. Management is overriding the risk concerns and early warnings that could have been raised if risk identification could have been done. Management is failing to ask tough questions concerning their businesses which may help in risk identification.
Risk identification is the first step towards risk management. The main objective of this step is early identification of events that can occur in the future and can have negative impacts on a project or an organization and affect the achievement of goals. Business risk identification isn’t just a nice-to-have but it’s a valuable tool for protecting your company and investments. Conversely, most companies are failing to identify risk signals which shows a lax attitude and that lax attitude could be tempting and impossible to ignore unless there’s accountability and responsibility built in an organisation.
The consequences of failure to identify risk on financial statement reporting and audit engagements are complex and have resulted in challenges for management, those charged with governance and auditors. There is an unprecedented level of uncertainty that bring risk in running a company brought by the economy, future earnings and many other inputs that represent fundamental elements of financial reporting. Planning and design entail some form of decision making, it is best to identify the risks inherent with each alternative. Failure to adequately identify risk may result to poor planning and lead to high operational costs.
It may sound counterintuitive, but effective business risk identification can help grow an organisation. Think about it. One is more likely to jump into a swimming pool if he/she know the water is sufficiently deep enough to prevent injury. Now that doesn’t mean one can’t possibly be hurt, but it does mean he/she is taking a managed risk.
But imagine being on a diving board and having no idea if there’s any water in the pool at all. Would you jump? No!
Risk identification and taking steps to mitigate the risk can actually help make one much more confident. Sure, there’s still a chance you could fail, but you’ve done what you can to improve your chances of success. If you fail to identify your business risks, you’re jumping blind… or not jumping at all. Identifying risks can help you make the most of opportunities you’d miss if you were paralyzed by fear.