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What is risk management and why is it important?

Posted: 10 November 2021
The importance of risk management

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

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

There are different types of risk management, from the issues that 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 there's generally a requirement that different departmental stakeholders carry out risk identification to ensure that their area of the business minimises risk as much as possible.

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

Enterprise risk management can cover a lot of ground and usually involves a wide range of management tools and contingency plans in order 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 mitigating the factors that have an adverse effect 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

There are a number of different approaches that organisations can take to handle risk.

Ignore it: One method is to simply ignore risk and deal with any negative problems as and when they arrive. Business normally involves risk in some shape or form, but it can be possible to ignore potential issues right up until they happen. However, this isn't necessarily the best solution, as it can create significant issues for your business if things don't go to plan!

Mitigation: A more pragmatic option is to accept some element of risk, but to mitigate it through planning and procedure.

Avoid risk: It's possible to avoid risk altogether in certain areas. For example, halting all company travel during the pandemic and instigating a policy of working from home is a method of risk avoidance that was implemented by many organisations.

Risk transfer: You can insure against risk. There are many insurance policies out there that will cover you against certain types of risk. This is a form of risk transfer, where the risk isn't removed or actioned against, but the company is covered if the worst does happen. Standard insurance policies such as building insurance, which covers against fire and damage, is a form of risk transfer.

Employee risk management

Employee risk management is another area of a business that needs to be considered. This aspect of a business is sometimes overlooked, which can prove costly if problems occur. Therefore, a proper risk analysis needs to be undertaken to reduce the potential for financial risk.

Employee risk management often falls under the remit of human resources (HR), but other departmental teams and individuals may get involved if there's something specific that needs to be addressed.

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, and it's common to put travel risk management solutions in place, as there are a number of significant issues and risk factors relating to travelling for business.

Risk management in travel

If the coronavirus pandemic has taught us anything, it's that there is potential for significant risk when travelling for business. Not only have business operations been significantly affected, but business risks have increased and exposed companies to legal liability issues. Although Covid-19 is a fairly straightforward 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 travelling and health crises in certain locations are nothing new. Other issues that need to be taken into consideration when evaluating risk in travel are civil unrest, travelling to dangerous locations and even natural disasters. A business has a duty of care to its employees and must 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 carefully check 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-19 during the pandemic. This means that it's even more important that your company is able to manage risk and have mitigation plans in place.

How Egencia can help with risk management solutions

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

Traveller risk management needs to cover duty of care issues across the entirety of an employee's business trip, including when they're travelling to a location, during the time they spend at the location and when they're on their way back to the office or home. If an employee is travelling on your behalf, then their safety is your responsibility. This can even mean stopping an employee from travelling 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 the process of identifying risks, but Egencia's tools and systems can help with this. 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 if it isn't effective, your employees might be at risk, which opens your company up to litigation.

A risk management programme needs to be dynamic, flexible enough to change when the need arises and also involve the employees themselves, who often have an idea of the risks involved. Everyone's understanding of risk is different, so a company needs to know 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 travellers from booking certain locations, and even limit the number of employees that travel together. For example, you can set a limit to the number of employees that can book the same flight at any given time.

The process begins as soon as a traveller tries to book travel or accommodation in a location that has an active alert. Egencia Travel Advisor can tell travellers and teams that there are potential problems, and can guide and educate an employee regarding 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 don't know what to do if a crisis situation occurs. This means that employee training must be at the forefront of any risk management plan. Employees need to have conversations about risk. They need to understand what constitutes a risk and how to deal with a crisis if it happens.

Locate and contact employees to mitigate risk: The next step is to understand where your employees are when they're travelling and what risks and issues there might be at their location. Being able to contact employees in real time is a key advantage of Egencia's Traveller 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 to plan alternative means of travel, swiftly and easily.

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

Traveller communication and travel support: Perhaps you're not even aware of a potential risk developing. Things can move quickly, and often the traveller themselves identifies a potential risk. With Egencia, travellers can use the AssistMe tool in their app to quickly contact a travel consultant. An alert will be generated back at HQ, and the traveller will receive a call back to provide them 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 that it impacts 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 help with avoiding fines and penalties.

Reduce litigation and liability problems: Some risks that a company faces revolve around litigation, liability and other legal issues. You can protect yourself against these risks by understanding them, carefully planning and even using 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 to 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 to 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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