The management of risk in an organization is effective for the operations both in the short and long-run. Risk can be fatal to a business venture. However, it is well managed it can be a source of gain for an organization. Risk management's main role in an organization is to create contingency plans that will be used in the mitigation. If an organization perfectly understand their risk, it can be a channel through which they can use to gain a competitive advantage in the market. The management of an organization has a crucial role in identifying and creating contingency plans to manage risk management solutions.
When an organization is risk-averse, they tend to evade risk at all times. They will prefer outcomes with low uncertainty to outcomes with high uncertainty even if the profit margins are likely to be high. The focus in such an organization should not be on risk management; rather, it should be on risk leadership (Renz, 2017). For instance, a greater risk is not on the profits that an organization tends to make. Instead, it is on the risk they will face if they decide to follow a specific decision. In such an organization, the aim is not to forego the profits but to evade the risk as much as possible.
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Also, from the findings, I realize that most organizations are laggards when it comes to the management of risk. They will wait for another organization to start by taking the risk and measure their level of success. If they successfully mitigate the risk, they will be willing to go the same path. A key example is an entity categorized as an earned income operation (Renz, 2017). The first alternative is to evaluate if they will lose their profits and what steps other similar entities have taken on the same matter. It is a way to gain insight into whether or not it is worthy of taking the risk at hand.
If the cashflow risk were the way to go, then many organizations would have been risk-averse. The issue of risk-seeking would not have been a part of most organizational operations. That is because no organization will be willing to tamper with their cashflow. Even the risk seekers tend to maintain their cash flow while countering the risk. The cost-dynamic direction would be the best way to go. For instance, the focus on the executive team in an organization would be more on their expenditure and benefits and less on the risk they will face in any of the ventures (SoftwareManiacLSM, 2012). There is a shift in the dimension of operations. An organization will be less concerned with the great gains they can get if they can mitigate through a risk.
A key focus on many organizations is on the negative aspects. Most management teams usually consider the option of if they fail to mitigate through a risk. However, they forget that they are risk seekers. They copy the reactions of a risk-averse organization and fail to take a risk. The best mode of operation for any business entity is to be risk-neutral. It implies that the company's operations can change based on the state of the risk. If the risk is too high to contain, they can shift and be risk-averse by evading the venture. However, if they figure out that it is possible to manage the risk from their evaluation, they can shift and be risk seekers and continue with the venture.
References
Renz, D. (2017). Risk management leadership: A governance conversation with David O. Renz. Non-profit Quarterly Journal.
SoftwareManiacLSM. (2012). Risk Management Fundamentals [Video]. YouTube. Retrieved from Risk Management Fundamentals - YouTube . Accessed 8 February 2021.
