Risk Management: Risk Control – Controllable and Uncontrollable Risks

Hide Menu

Controllable Risks

The risks that are due to the factors that are under the direct control of the business are called controllable risks.

Most controllable risks are internal risks that arise from the business itself. It happens because at times the business is not able to conduct properly, and has to face several problems.

Since they are mostly related to the business itself, it is easy to control them – hence the term, controllable risks. However, at times, it becomes very difficult for businesses to control risks for various reasons.

A good example is of operational risks that are related to the day-to-day operations of a business, such as small financial risks. Since there are numerous things happening in a business, it is often very difficult for managers or directors to keep an eye on everything and manage it on their own.

This is where there is the need to have risk units that can look after everything and manage it. Several big companies have big risk units with people who specialize in recognizing and controlling risk.

The biggest, and often the most difficult, task is the recognition of the risks associated with the business. If one is able to recognize the risks in advance, then it becomes easy to control it, because the business has direct control over them.

Uncontrollable Risks

Uncontrollable risks, as the name suggests, are the risks that arise due to the factors that are not under the business’ control.

They are considered important because a business has to plan very carefully regarding everything, keeping in mind the fact that they cannot control such risks, and that these risks may have a major impact on the business.

Some major uncontrollable risks are:

-   Economic Conditions

-   Political Instability

-   Changing Technology

To understand this clearly, take an example of a business, which after seeing the need and demand for a product decides to launch it in six months after a good amount of promotion. However, before it could launch the product, the technology changes and the product becomes obsolete as a better substitute is now available in the market. What will the business do now? It will have to suffer from a loss!

This is a huge risk that has to be controlled. In this case, the best practice is to do a good amount of research and keep all the uncertainties in mind, when planning. There are several research organizations that can help companies in this regard. They can prepare a prediction chart and what-to-expect from economical or political environment in the near future.

Businesses also have to keep an eye on competitors and make sure that they stay ahead in the competition. Another good option is insurance that can guard a business against several types of risks. It is also very important for businesses to have a contingency plan for both types of risks, as a bad situation can arise at anytime.

Further reading: Corporate Governance | Audit | Performance Improvement

Contact Sitemap Links
Copyright 2017 Best-Practice.com. All Rights Reserved.