What do you understand the good concept and tools for risk management? How to manage risk as an entrepreneur?

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 Risk

  • The possibility that things can go wrong or not turn out as expected 

Characteristic of Risk 

  1. Risk refers to future event 
  2. A requirement, assumption, or condition may cause risk 
  3. Can bring either positive or negative impact. Sometimes risks lead to opportunities rather than failure 

Risk management is about identifying, assessing and managing it instead of eliminating it.  (Paliienko, 2022).


Types of Risks in entrepreneurship

Before we are able to construct a plan on managing risks, it is important for us to understand the different types of risks an entrepreneur might face and what that exactly entails:

  • Strategic Risk - Any unfortunate events that may intentionally or unintentionally harm the main goal of the organization. This type of risk can leave a permanent scar on the company if left alone (Goel, 2022).
  • Economic Risk - Any potential changes in the economy that have a severe negative impact on the organization or company (Banerjee, 2024).
  • Financial Risk - The chance of a net loss because of a failed business decision or investment (Goel, 2022). 
  • Market Risk - A multitude of different factors which affects the overall performance of the company seen by the market, thus making the probability of investors losing their money (Tamplin, 2023).
  • People Risk - Unexpected and unpredictable behaviors that a person might cause harm on the performance and standing of the business (Evans, 2015).
  • Personal Risk - The possibility of any risk to directly impact individuals or their families (Adamson, 2023).
  • Technical Risk - When the production and design in the system has a prospect of not meeting the investor's expectations caused by the technical requirements (NASA, n.d.).

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Constructing a Risk Management Plan 

  • Assess and categorize risks 
  • Understanding financial, operational, legal, market and industry risks 
  • To mitigate financial and economic risks, diversify revenue streams, maintain healthy cash flow, and establish emergency funds. 
  • Conducting regular risk assessments, promoting open communication about risks among the company, and integrating risk management into decision-making (Vizologi, 2024).
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Powerfully built risk management
risk management
Having a powerfully built risk management culture is essential for effective risk management. It will literally raise up competencies and awareness among all staff levels. Hence as a consequence all staff will be more alert in order to reduce the risk that might appear instead of just neglecting the risk. (Sidorenko, 2016)



Budget tracking tool
Budget 
Besides of having a good concept, a good tool also playing a vital role for a good management. By using budget tracking tool it able to take track for every expenses including project total budget, spending, earning and last but not least amount remaining. Having these datum the manager able to examine the result and establish plans for contingency measures and reserves that mitigate risks. (Rotich, 2022)


Identify, analyze and consult 
Risk
The more substantial risk, the more problem arise. Henceforth, entrepreneur will tried their best to minimize the risk. Entrepreneur need to know how to identify the risks, analyze the risks and consult with stakeholders. Entrepreneur need to review audit reports such as workplace safety or financial audit report. Next, by using analyzing AI list out the probability of what will be happened and damage if the risk happened. Therefore using these reports create a meeting and have a deep discussion with all the stakeholders to determined what to do next. Though these procedures, entrepreneur can respond to unexpected risks and get support for the risk management plan as many hands provide great strength and many brains provide difference thoughts. (Komonov, M(20232, July 19) )

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Risk mitigation


By applying this concept, we would known the risks that we are facing and clearly acknowledge the negative impact to company since ignoring risk factors can’t make risks vanish. According with risk mitigation, it would help a company keeping business profitable and good reputation as well as support from stakeholders. 
(Wojno, 2023)


SWOT analysis 


SWOT analysis would help businesses identify the weaknesses and strength of a company as well as external opportunities and threats, it can perform an effective decision-making process and develop action plans through issues that brings negative effect to company’s’ business. (Raeburn, 2024)




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Leveraging technology
Leveraging technology for risk management involves using advanced software tools to automate and enhance various processes. Automated tools can identify emerging risks by scanning internal and external data sources, such as financial reports, market trends, social media, and news feeds. These tools also assess risks using predefined criteria to provide objective evaluations of their likelihood and impact. Real-time risk monitoring ensures continuous surveillance of risk indicators, with software providing immediate alerts when thresholds are crossed, supported by interactive dashboards that visualise key metrics and trends. Data analysis benefits from machine learning and AI, which uncover patterns and enable predictive modelling to forecast potential risks. 

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PAPA Model

PAPA model stands for Park, Adapt, Prepare, Act. This model was developed and used by a group called LEGO group (Andy, 2021). 

PAPA's Model

Each section has its own priority or urgency and possibility of occurring. 
  • Park has the lowest probability of occurring and the rate of change is slow, which means it has the lowest priority among the four sections. Usually a plan is made for it but it is rarely modified due to its slow changes. Risks under this section are not deal with frequently but will still keep an eye on it (Mark, 2012).
  • Adapt comes next with a higher probability of occurring while still having a slow rate of change. Risks under this section are being actively dealt with, but the difference is the plan used to deal with it is similar to past plans. 
  • Prepare is similar to park but has a higher rate of change. High rate of change means the risk happens rapidly so it needs to be dealt immediately. An organization will constantly revise and prepare to mitigate the risk if it does happen (Mark, 2012). This can be considered as the second most important section.
  • Act has the highest probability of occurring and the highest rate of change. Risks in this section are the most important and most crucial to an organization. An organization will constantly monitor and deal with risks under this section most of the time (Mark, 2012). This section has the highest priority among other sections.
This model allows an organization to prioritize which things that need to be more alert, being able to shift their attention to the correct things and decreases the overall losses of an organization.

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Reference

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