Speaker 1: Hello everyone, welcome to Business School 101. Risk management is an essential aspect of running a successful business. Whether you work for a large company with an entire risk management department, or you are a small business owner who needs to investigate risk management yourself, risk management is a very important factor for your success. Your overall objective should be to make your company as safe as possible, prepared for the likelihood of a financial, physical, or technological problem. So what is risk management? What are the most common types of business risks? How to handle those risks? Are there some real-world examples? In this video, I will discuss these questions with you. Section 1. Definition. Risk management refers to the process of identifying, assessing, and mitigating risks that could impact a company's strategic objectives. This involves analyzing potential risks, such as market volatility, competitive threats, regulatory changes, and natural disasters, and developing strategies to minimize their impact on the business. Effective risk management requires a comprehensive understanding of the company's goals, operations, and risk tolerance, as well as the external factors that could impact the business. Section 2. Categories. Here are six major risks that businesses may face. Number 1. Financial Risk. This type of risk arises from the uncertainty of financial outcomes, such as changes in interest rates, currency fluctuations, or credit defaults. Financial risk can impact the value of investments, cash flows, and profitability. For example, a company that has a high level of debt may be more susceptible to changes in interest rates, which could increase their interest expenses and decrease their profitability. Number 2. Operational Risk. This type of risk arises from the uncertainty of operations, such as equipment failure, supply chain disruptions, or employee errors. Operational risk can impact productivity, quality, and customer satisfaction. For example, a manufacturing company that relies on a single supplier for a critical component may face operational risk if that supplier experiences a disruption, such as a natural disaster or labor strike, that prevents them from delivering the component on time. Number 3. Legal and Regulatory Risk. This type of risk arises from the uncertainty of legal or regulatory changes, such as changes in labor laws, environmental regulations, or tax laws. Legal and regulatory risk can impact compliance, reputation, and financial performance. For example, a company that operates in a highly regulated industry, such as healthcare or finance, may face legal and regulatory risk if there are changes to regulations that impact their operations or increase their compliance costs. Number 4. Reputational Risk. This type of risk arises from the uncertainty of how the public perceives the company, such as negative media coverage, product recalls, or data breaches. Reputational risk can impact brand value, customer loyalty, and investor confidence. For example, a food company that experiences a product recall due to contamination may face reputational risk if customers lose trust in the safety and quality of their products. Number 5. Strategic Risk. This type of risk arises from the uncertainty of strategic decisions, such as entering new markets, developing new products or services, or pursuing mergers and acquisitions. Strategic risk can impact the long-term success and sustainability of the business. For example, a company that invests heavily in research and development for a new product may face strategic risk if the product fails to meet customer needs or does not generate sufficient revenue. Number 6. Cybersecurity Risk. This type of risk arises from the uncertainty of cyberattacks, such as hacking, phishing, or malware. Cybersecurity risk can impact the confidentiality, integrity, and availability of the company's data and information systems. For example, a company that experiences a data breach may face cybersecurity risk if sensitive customer data is compromised and the company's reputation is damaged. Section 3. Solution. To conduct risk management, the following steps can be taken. Step 1. Identify Potential Risks. Identify and document all potential risks that could impact the company's strategic objectives. This involves analyzing both internal and external factors, such as market volatility, supply chain disruptions, regulatory changes, and cybersecurity threats. Step 2. Assess Risks. Evaluate the likelihood and potential impact of each identified risk. This involves estimating the probability of a risk occurring and the potential consequences if it does occur. Step 3. Prioritize Risks. Rank the identified risks based on their severity, taking into account both their likelihood and potential impact on the company's strategic objectives. Step 4. Develop Strategies. Develop risk management strategies to mitigate or eliminate the identified risks. This may involve implementing controls or processes to reduce the likelihood of a risk occurring or developing contingency plans to respond to the risk if it does occur. Step 5. Implement Strategies. Implement the identified risk management strategies, making sure that they are integrated into the company's operations and that relevant employees are trained to follow them. Step 6. Monitor and Reassess Risks. Continuously monitor and reassess identified risks, taking into account changes in the business environment, market conditions, or regulatory requirements. This ensures that risk management strategies remain effective and up-to-date. Step 7. Communicate Risks. Ensure that risks are clearly communicated to all relevant stakeholders, including management, employees, customers, and investors. This involves providing regular updates on the status of risks and mitigation strategies, as well as clear guidelines for reporting and responding to new risks. Section 4. Two Real-World Examples. Example 1. Zoom. In 2020, as the pandemic led to lockdowns and work-from-home policies, the demand for videoconferencing services surged dramatically. Zoom faced several risks, such as the increased load on their infrastructure, security and privacy concerns, and the need to maintain a high-quality user experience. To mitigate these risks and respond effectively, Zoom took the following steps. First, scaling infrastructure. To accommodate the massive increase in users and maintain service quality, Zoom invested in expanding its server capacity, network infrastructure, and software optimization. Second, addressing security concerns. Zoom implemented end-to-end encryption, enhanced password protection, introduced waiting rooms, and made it easier for hosts to manage their meetings securely. Third, enhancing user experience. Zoom continued to improve its user interface, making it more intuitive and feature-rich, including virtual backgrounds, breakout rooms, and integration with third-party applications. Fourth, expanding support and training. To help users adapt to the platform and maximize its potential, Zoom increased its customer support capacity and provided training resources, webinars, and tutorials. Fifth, focusing on communication. Zoom's leadership, including the CEO, engaged in proactive communication with customers, employees, and stakeholders to address concerns, provide updates on the company's efforts, and maintain transparency. Through these risk mitigation and response planning measures, Zoom was able to manage the challenges posed by the pandemic, capitalize on the increased demand for remote collaboration tools, and strengthen its position in the market. Example 2. Ford. In 2021, the global semiconductor chip shortage posed a major risk to Ford's production capabilities, potentially leading to delays, reduced output, and a loss of market share. Ford had to prioritize risks and make following strategic decisions to minimize the impact of the chip shortage on its operations. Number 1. Prioritizing Vehicle Models. Ford chose to prioritize the production of its most profitable and popular models, such as the F-150 pickup truck and the Mustang Mach-E electric SUV. By focusing on these high-demand vehicles, Ford aimed to optimize the allocation of the limited semiconductor chips available. Number 2. Partially Completed Vehicles. In some cases, Ford decided to manufacture vehicles without certain non-essential semiconductor chips. This allowed them to maintain some level of production and deliver vehicles to customers more quickly. Number 3. Diversifying Suppliers. Ford began exploring alternative sources for semiconductor chips and other critical components to reduce its reliance on a limited number of suppliers. This strategy aimed to minimize the impact of future supply chain disruptions on the company's production capabilities. Number 4. Long-Term Investments. Recognizing the strategic importance of semiconductor chips, Ford announced plans to invest in new chip manufacturing facilities in collaboration with other stakeholders. This investment aimed to increase domestic chip production and reduce the risk of future shortages affecting the company's operations. Through these risk prioritization measures, Ford was able to better navigate the challenges posed by the global semiconductor chip shortage and mitigate its impact on the company's production and overall performance. Section 5. Summary. To sum up, risk management and strategic management refers to the process of identifying, assessing, and mitigating risks that could impact a company's strategic objectives. Alternative risk management can help businesses to make better decisions, allocate resources more effectively, and achieve better results over the long term. Alright, that's all for today's topic. If you have any questions regarding this video, please leave your thoughts in a comment below. I hope you guys have enjoyed this video, and if you did, make sure you give it a thumbs up and subscribe to my channel. Thanks for watching, and I will see you next time.