What is Risk Control?

What is a Risk?

Risk can be defined as the exposure to losses or injuries. A risk is caused by the occurrence of an unfavourable or undesirable.

What Is Risk Control?

Risk control, a crucial part of the risk management process, is a business strategy that allows organisations to evaluate potential losses and take action to reduce or eliminate those risks.

It aims to identify, assess, and prepare a company for any threats that may interfere with corporate operations or the organisation’s ability to pursue financial goals and other objectives.

It is a technique for identifying potential risks in the operation of a firm, its technical and non-technical aspects. In order to identify the potential losses, they assess the company’s assets, loans, and investment which is called Risk Assessment. It’s an important procedure to determine the worth of an investment and how to reduce risks.

It can also be defined as planning, arranging and controlling of activities and resources in order to minimise the impact of uncertain events. It is the protection of assets, earnings, liabilities, and people of an enterprise with maximum efficiency at a minimum cost.

Risk control uses findings from risk assessments that uncover potential risk factors in an organisation’s operations and management practices. Those factors include financial policies, technical and non-technical aspects of the business, and other issues that could harm the company.

Risk control is important for the health of an organisation because it helps the company attain its goals and profits by protecting against financial risks that may affect the bottom line. It is an internal control strategy with loss prevention at its heart — a form of loss control.

What are the risks?

Risk is one of the major characteristics of our environment along with uncertainty. It is not only the centre of insurance but also inseparable from our daily life. Risk are faced by everyone, in one form or the other. It is often referred to as a possibility of loss or misfortune. There is always exposed to risk and sometimes it’s greater and sometimes it’s lesser but it is bound to occur and it happens in different forms or ways, which can be loss of life, property, health, theft, an accident.

Risks are classified on the basis of the type of consequence and problems involved.

So there can be :–

i) Pure risk — In this type, there is only a chance of loss and uncertainty is usually whether it will happen at all or when, where or how it will happen, often tagged as misfortunes that cause damage or hurt. This is a type of risk that can be protected by insurance.

ii) Speculative risk — In this case, there is a chance of loss or even a possibility of a gain or break even. If it stems out of a specific event then its called a speculative risk. They cannot be protected by insurance and usually are covered by diversification.

iii) Fundamental risk — This type of risk affects the whole society and they are impersonal. It can either affect the society in general or a particular section or group of people rather than individuals and they are usually beyond the control of individuals. For example, earthquakes, typhoons, windstorms, etc

iv) Peculiar risks — These take place due to the decision and actions of man, the causes and effects are completely personal. These peculiar or particular risks are insurable. For example, the decision to build a house, own a car, are personal but with their peculiar risks.

Risk Management versus Risk Control

Although risk control is part of risk management, the two concepts are not the same.

Risk management is the end-to-end process of identifying and handling risks. Risk control, on the other hand, is a way for organisations to mitigate risks by implementing operational processes.

For example, a company might control the risk of equipment failure by performing maintenance according to a pre-set schedule. That is not the same as the entire risk management process of identifying equipment failure as a potential threat, mitigating the threat through maintenance, assuring sufficient surplus equipment in case of a failure, and reporting on equipment maintenance to senior executives.

Put another way, risk control is specifically focused on preventing risk, reducing the effect of that risk, and reducing disruption should the risk actually happen.

What is Risk control?

When it comes to risk control the first step is definitely the assessment of assets of the company. The company/firm then chalks out the best methods to control the losses. They do accept the task but the aim is to minimise it as much as possible.

Since it is very difficult to avoid it, loss prevention is the best solution. In case of a threat, the loss prevention strategies help to accommodate the risk effectively and minimise the damage as much as possible. One of the strategies for risk control is Insurance, a third party is appointed to balance the losses under a contract.

They separate the assets strategically so that the risk is spread evenly and a threat can only affect one business location at a time because if all the assets are merged in the same place it can increase the percentage of the risk.

FYI, that’s not all. Risk control also involves duplication which is a backup plan, created through technology. A company cannot afford a system failure hindering its operations, therefore a backup server is always kept ready.

Apart from that the resources are managed efficiently and put in diverse lines of business, offering a variety of products and services, so a loss in one line cannot harm the entire firm and its bottom line.

What does risk control include?

Also known as “risk treatment,” risk control includes the following:

• Risk avoidance. Applying safeguards that eliminate or reduce the business risks that can harm the organisation’s assets. While risk management seeks to control the damages and financial consequences of threats, risk avoidance aims to avoid the threats entirely.
• Risk transference. Shifting the risk to other areas of the business or to outside entities, such as an insurance company. The goal here is to let another entity accept the risk. For example, a company could outsource business processes as data storage or IT management, transferring the risk to providers of those services (under the logic that they are experts in those fields, better able to handle the risk).
• Risk mitigation. Reducing the impact if a bad actor exploits a vulnerability. Risk mitigation means having policies and procedures in place to lessen the adverse effects when something happens. These risk mitigation strategies include incident response plans, disaster recovery plans, and business continuity plans.
• Risk acceptance. Understanding the potential consequences of a risk, and accepting the chance of those consequences without control or mitigation. An organisation might do this when it believes the chance of the risk happening is minimal, or the potential harm from the risk wouldn’t be significant.

Examples of Risk Control Actions

Regular inspections are done to reduce infrastructure risks. Equipment failure can be a huge risk to a firm, maintenance of equipment used in production is an example of risk control. The clients are provided due diligence for credit risks by carefully validating credit applications.

Another example of risk control is a validation of the system wherein human error is reduced in financial trading. However, machines are also designed to shut down automatically when there are errors in order to reduce safety risks.

Policies are also implemented which involve wearing safety gear to reduce safety risks at work sites like building sites for example. There is always scope for change which is controlled by reviewing and approving changes to a project.

Overall the risk of any failure is managed by escalating issues and making the decisions required to clear them.

How does risk control help a firm?

Risk control is an important discipline for businesses. It helps in encouraging regulation and provides relief at a time of crisis. It helps predict all the risks that are most likely to happen to a firm and encourages preplanning to keep them in control and be aware of forthcoming issues; it basically helps to be one step ahead.

Identifying the impact of business and projects, focusing on ideas discussed and then dealing with points that are finalised with more relative solutions, is necessary. Risk control takes all views into account and helps to tackles issues easily.

Risks are treated by implementing already discussed plans and there is an internal agreement to put forth those actions so it helps to prevent conflict of interests. With all the planning and foreseeing that happens the risks that are to be handled are to the minimum which assists in speeding up data to change policies within the mapped business functions.

There is always increased awareness of the scheduled terms of risks and successful analysis and exercise of control over them. One can learn through the process and treat the risks better and improve performance gradually. It helps to save cost and time for the firm which results in better productivity.

New opportunities arise with unraveling issues and benefit in preparation for future endeavours along with the vast knowledge that is gained through experience coming from a greater insight of real balance sheets that supports the culture of risk managment.

The Importance of Risk Control?

Risk control measures are very crucial for the prevention of accidents or injuries in organisation. They provide a sort of safety net by identifying, controlling and reducing the risks present in an organisation.

They provide a number of benefits to a firm, like identifying at-risk employees, and knowing what factors they are exposed to. Awareness of factors that cannot be eliminated and some factors that can be eliminated completely helps to know what to watch out for and gain knowledge of mitigation methods.

These processes are very important for the reassessment of risks time and again and check the efficiency of the methods applied to control them and decide whether they should be re-evaluated. It really does reduce the accidents and injuries caused by an organisation.

These planning measures also help take care of legal obligations which require identification of risks and apply safety measures accordingly. There are a number of measures that work together in order to prevent a company from losses, elimination of risks is most preferred but it cannot work in all cases, thus there is risk substitutions and risk isolation which are implemented.

These work as a tool to keep the company in maximum profitable situations are always covered up against losses.

In a Nutshell

Thus, risk control is an important procedure to keep the firm running healthily, to help it attain the goals and profits that it aims for and make sure that losses incurred are kept at a minimum and or at bay and if they are, to ensure that they do not cause a lot of collateral damage to the assets of an organisation/business.