MANILA, Philippines — In many companies, risk management is a task of management that is generally taken for granted, except maybe in the financial sector. Risk is always an integral part of doing business. All business ventures carry both a significant amount and diversity of risks.

The ability of managers to manage risks spells the difference between success and failure. Then, there is also a lack of understanding on what constitutes risk management. In some cases, risk management is limited only to liability insurance. In reality, risk management encompasses a much broader business scope.

Most managers and executives recognize that it is necessary to identify business risks, rank them in order of severity of impact to the business and create actions to mitigate, if not eliminate, the risks. But between recognizing and taking concrete steps to manage risks lies the difference between a sustainable and a short-lived business.

This is especially true for start up businesses. This is also true for new projects and products. In the exuberance that the product will be successful, all the potential pitfalls are literally taken for granted.

Take for example a company that wants to launch a new product in the market. The product is a great product, with high level of demand of a substitute product but definitely more potent. It was thought to be simply riding on the crest of an existing product. In most projects and business endeavors that I have witnessed, risk analysis is often not considered in the study phase. Very often, managers fall in love with their proposals that they forget that there is always an element of risk in what they want to do.

If risks are ever present, who should manage them? The question now is who is really responsible for identifying and managing business risks? Does it lie in the hands of the Chief Executive, the Finance Manager, the Business Managers or the frontline employees? Or, is risk management managed depending on the severity and the likelihood of the risk happening?

My take is that risks are managed by everyone in the company, from the top guy down to the employees who face the customer on a regular basis. Managing risks has to be approached and mitigated (if not eliminated) on a multi-dimensional basis.

The severity and the type of risk vary and will almost inevitably be present in all the hierarchy and functional units of the company. And also importantly, it will vary from business to business.

To illustrate in a retail business, the saleslady faces and deals with the customer on a daily basis. It managementwould appear to some that; “Well, she’s just a saleslady, so what’s the big deal? She’s not authorized to make substantial commitments for the company anyway.”

Wrong, risk being multi-dimensional can be high even if it only involves a low ranking employee. In reality, the business risk is higher with those employees that deal directly with the customer.

The type, location and severity of risk determine who should manage it. In the example above, we identify the risks to be reputational and customer risk and managing these is the responsibility of the front liners.

In the same token, a financial risk such as a capital expenditure may be under the purview of the finance manager. A strategic plan such as product launches, new business endeavor, company directions are examples of risks that should be managed not only by the Chief Executive but the line managers as well.

There are countless types of risks in a business but risks present are also different for different businesses. The key is to be able to identify those risks that are relevant to the business and the environment it operates include competition, technology and regulatory, to name a few. The next step is to rank those critical risks and create measures to mitigate if not eliminate the risk.

In the end, all businesses have risk and taking risks are part of doing business. Like any business investment, the higher the risk, the greater the reward. It’s all about managing risks to succeed.

It’s everyone’s job! Email: rbo811@yahoo.com