In this video, Informa TechTarget industry editor Craig Stedman defines risk management and explains why it's important for businesses.

Risk management turns uncertainty into opportunity.

Business always involves risk, whether it be financial uncertainties, technology issues,strategic management errors or natural disasters. While these risks can be damaging, some degree of risk is necessary for a business to grow.

Risk management is the process of identifying, assessing and controlling threats to an organization's capital, earnings and operations. While it's not meant to eliminate risk completely, risk management focuses on making smart risk decisions andidentifying risks that are worth taking.

Here, we'll discuss the risk management process.

An effective risk management program helps an organizationconsider the full range of risks it faces and their potential impact on business goals. This approach is sometimes calledenterprise risk management, since it emphasizes the positive risks that could increase business value.

A risk management plan should involve the following steps:

1. Identify the risks faced by your organization.
2. Assess the likelihood and possible impact of each one.
3. Evaluate and prioritize the risks based on business objectives.
4. Treat -- or respond to -- the risk conditions.
5. Monitor the results of risk controls and adjust if necessary.

For example, let's consider a cafe's risk management plan. It currently relies on one supplier for coffee beans. Management determines that if the supplier faces any disruptions, the business is at risk of running out of coffee beans and losing profit. To address this, management decides to use an additional coffee bean supplier. Although this might cost them more in expenses, logistical support or storage, it strengthens their supply chain and addresses the risk of potential business losses.

When creating a risk management plan, organizations have to ensure it is systematic, comprehensive, transparent, all-inclusive and continuously monitored and improved.

Aneffective risk management strategy ensures the following:

• Increased awareness of risk across an organization.
• Compliance with regulatory and internal compliance mandates.
• Improved workplace safety and security.
• A competitive advantage in the market.

While risk management is necessary, there are several challenges to keep in mind. Risk management teams should expect the following:

• An initial increase in expenditures.
• A large investment of time and money to ensure compliance.
• Complications in reaching a consensus on risk severity, tolerance and best defensive strategies.
• Difficulty in demonstrating the value of risk management to executives.

A sound risk management plan is important since new threats emerge constantly. Just as organizations had to account for risks brought forth by the COVID-19 pandemic,now they will also have to prepare for those associated with AI development, for example.

How does your organization tackle risk management? Let us know in the comments, and remember to like and subscribe, too.

Tommy Everson is an assistant editor for video content at Informa TechTarget. He assists in content creation for Informa TechTarget's YouTube channel and TikTok page.

Sabrina Polin is a senior managing editor of video content for the Learning Content team. She plans and develops video content for Informa TechTarget's editorial YouTube channel, Eye on Tech. Previously, Sabrina was a reporter for the Products Content team.