Every business has fundamental risks that can jeopardize its lifespan. With more changes happening every second in most aspects of the world, the risk is uncertainty. Unless properly managed, this uncertainty can impact the achievement of company goals. Thus, companies need risk management to change this uncertainty into something more manageable, as explained by Arief Karnamiharja S.Si, MSM, BCCS, a risk management practitioner in a guest lecture at SBM ITB on Tuesday, (04 / 10/2022).
Arief further explained the concept using an umbrella and rain as an analogy. He elaborated that business has two risks: inherent risk and residual risk. Inherent risk exists because of the nature of the business, and residual risk is the residual inherent risk that exists despite going through the risk management process.
“Think of risk as rain, with umbrellas as a control activity. Without an umbrella, you will be drenched in the rain. With an umbrella, you might just get splashed. With risk management, you can turn a significant threat that could end your business into something manageable,” said Arief.
Arief also mentioned that dealing with risk should be a continuous behavior throughout the organization, not a regularly scheduled process with a silo approach or separate divisions. Risk management should not be treated as a separate process from other business domains as it is an integral part of business operations.
“Risk management is one of the important pillars of good corporate governance (GCG), which links strategy with improving performance. Therefore, it must be aligned with the company’s strategy. Management must be aware of risks in formulating strategies, so there needs to be strong coordination between the risk and the strategy departments,” added Arief.
In addition, managing fluctuations through integrated risk management can optimize the company’s value creation and even build a competitive advantage in the long term. Thus, management must be concerned about implementing risk management as a whole and creating a culture, process, and risk management structure directed at achieving the company’s potential.
Written by Student Reporter (Janitra Nuraryani, Management 2023)