essay on risk management

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What Is Risk Management & Why Is It Important?

Hand holding a stack of blocks that spell risk, which are preventing a stack of dominos from toppling into human figurines

24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

Access your free e-book today.

What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Strategy Execution | Successfully implement strategy within your organization | Learn More

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

How to Formulate a Successful Business Strategy | Access Your Free E-Book | Download Now

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

About the Author

Risk Management - Free Essay Examples And Topic Ideas

Risk management involves identifying, assessing, and controlling threats to an organization’s capital and earnings. These threats could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. An essay on risk management might cover strategies to mitigate risks, the impact of risk management on business performance, and the evolution of risk management practices over time. This topic might also touch on various risk assessment models, the ethical aspects of risk management, and case studies illustrating the consequences of inadequate risk management. We have collected a large number of free essay examples about Risk Management you can find in Papersowl database. You can use our samples for inspiration to write your own essay, research paper, or just to explore a new topic for yourself.

Risk Management in Nursing Practice

Bowers (2014) identifies the need for the preservation of safety as the most crucial objective for mental health nursing. However, this is a very isolative environment with seclusion being a part of this treatment and intervention. Clifton et al (2017) argues that this could lead to possible deterioration of social inclusion, independence and communication. Shared decision-making (SDM) is a frequently utilized model for the purpose of approaching sensitive decisions (Stiggelbout et al, 2015). This process is where clinicians and patients […]

Risk Management of Innovation Projects

Abstract A company’s ability to create new products and services that differentiate them from the competition is becoming a key factor to ensure a business’ longevity in this ever-growing market. Because of this, organizations have continuously tried to launch innovation projects that ultimately fail in most cases due to the higher than normal levels of risk and uncertainty associated with these types of ventures. The purpose of this paper is to review and analyze the characteristics of radical innovation projects […]

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What is Risk Management?

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Effective Risk Management

Uncertainty bounds today's economy, and every organization needs a structured process for effective risk management to sustain a competitive edge (K. J., A., V. R., and U., 2017). Numerous corporate governance regulations, like the SOX Act 2002, COSO Enterprise Risk Management Framework 2004, Companies Act 2013, and Clause 49 of SEBI, have made the existence of a risk management committee mandatory. A risk management committee, a person, or a group of persons, is required at the top management level for […]

Citizen and Government Collaboration in Addressing Natural Disasters in Japan

Natural hazards are indeed inevitable, even during this time of pandemic. A massive 7.3 magnitude earthquake has jolted the northeastern coast of Japan, leaving 150 injured people last February 13, 2021. It’s considered an aftershock of the 2011 Great East Japan Earthquake because it happened just weeks before its 10th anniversary. The 7.3 magnitude earthquake caused widespread blackouts, affecting 950,000 households, and displaced around 240 people in Miyagi and Fukushima prefectures from their homes. The Japanese Intensity Scale logged it […]

Futuram’s Risk Management Strategy

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IT Risk Management Techniques

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Risk Policy, Management and Communication

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Disaster Risk Management

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Hazard Management in Foreign Exchange

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Impact of Natural Disasters on Risk Management

Research says threats of natural disasters may continue to rise due to the increase in the average temperature of the water in oceans (Tennyson & Diala, 2016). Weather events will be intense and frequent due to global warming. This will result in rising sea levels and other environmental changes. According to Tennyson and Diala, disaster preparedness is the total of all measures that have been taken and the policies that have been adopted to address a disaster before it occurs […]

Risk Management in Online Transactions

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Risk Management – Essential and Complete Corporate Governance System

Risk management is a known element of an essential and complete corporate governance system. It is defined as a mix of activities that effectively reduce the negative impact of risk exposure on the company's projected profits, cash flow, and consequently, the value of the organization. Effective risk management is regarded as an important factor that determines the survival and success of an organization. While risk management is not a new concept, it has recently garnered attention and become moreassertive in […]

Identifying and Managing Business Risks

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The Effects Automation Technology has on Risk Management

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Risk Management Techniques for Satellite Programs

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Enterprise Risk Management Project

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The proactive behavior, commonly associated with the initiative, creativity, and innovation, is required in today's organizations. It can be a positive differential in times of market turmoil and uncertainty. According to Coombs, the best way to prevent a crisis in an organization is to have a proactive management. Proactive behavior is an element of change and it impacts the company's performance. A proactive management seeks deliberately for changes and improvements, it anticipates the problems and chooses its own course to […]

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Risk Management Section of your Company’s

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Essay about Risk Management Techniques for Satellite Programs

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Essay on Risk Management

Students are often asked to write an essay on Risk Management in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Risk Management

What is risk management.

Risk Management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. These threats or risks could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters.

Importance of Risk Management

Risk Management is important because it prepares an organization to face uncertainties. It helps to understand potential risks and to make plans to minimize their impact. Proper risk management can reduce not only the likelihood of an event occurring, but also the magnitude of its impact.

Steps in Risk Management

Risk Management involves several steps. The first step is identifying the risks. The next step is analyzing the risk to understand its potential impact. The third step is evaluating or ranking the risk. The final step is treating or controlling the risk.

Risk Management Techniques

There are several techniques for managing risk. One is risk avoidance, where the aim is to eliminate all risks. Another technique is risk reduction, where steps are taken to reduce the severity of the loss. Risk retention and risk transfer are other techniques used in risk management.

In conclusion, Risk Management is a vital part of any organization. It helps to safeguard an organization’s future through the identification and treatment of risks. With proper risk management, an organization can reduce the negative impact of threats they may face.

250 Words Essay on Risk Management

Risk Management is a process that helps identify, assess, and control threats that could harm an organization. These threats or risks could be anything from financial problems, accidents, natural disasters, or even legal issues. The main goal of Risk Management is to lessen the impact of these risks.

Risk Management follows four main steps. First, we identify the risks. This means we look at what could possibly go wrong. Next, we assess the risks. We try to figure out how likely it is that these risks will happen and how much damage they could cause. Then, we work on ways to control these risks. This could mean coming up with a plan to prevent the risk or lessen its impact. Finally, we monitor the risks. We keep an eye on them to see if they change or if new risks come up.

Risk Management is very important because it helps organizations prepare for the unexpected. It helps them make plans that can prevent or lessen damage from risks. It also helps them save money that they might lose if these risks were to happen.

In conclusion, Risk Management is a necessary practice for all organizations. It helps them identify, assess, control, and monitor risks. By doing this, organizations can prevent or lessen the impact of these risks, saving them from potential damage and loss.

500 Words Essay on Risk Management

Risk Management is a process that helps you identify and control possible problems that might happen in the future. It’s like a safety net that prepares you for any unexpected events.

Why is Risk Management Important?

Imagine you are planning a picnic. But, what if it rains? Your picnic would be ruined. So, you check the weather forecast before planning. This is a simple example of risk management. In the same way, businesses also use risk management. They want to know about any problems that might happen. This way, they can make plans to avoid them or reduce their impact.

Risk Management includes four main steps:

1. Identifying the Risks: The first step is to find out what could go wrong. This could be anything from a machine breaking down to a sudden change in market trends. 2. Analyzing the Risks: Next, you need to understand how big the problem could be. This helps to decide which risks need the most attention. 3. Planning the Response: Once you know the risks, you can make plans to handle them. This could mean avoiding the risk, reducing its impact, or accepting it and making a plan to recover from it. 4. Monitoring the Risks: Finally, you need to keep an eye on the risks and how well your plans are working. This means you can make changes if needed.

Benefits of Risk Management

Risk Management helps in many ways. It can save money by avoiding costly mistakes. It can also help a business to run smoothly, as they are prepared for any problems. Plus, it can help to build trust with customers and investors. They can see that the business is ready for any challenges.

Risk Management in Everyday Life

Risk Management is not just for businesses. We use it in our daily lives too. For example, wearing a helmet while riding a bike is a way of managing the risk of injury. Or, saving money for a rainy day helps to manage the risk of unexpected expenses.

So, Risk Management is a very helpful tool. It prepares us for the future and helps to avoid or reduce problems. It is used in businesses, but also in our everyday lives. By understanding and using Risk Management, we can make better decisions and be ready for whatever comes our way.

That’s it! I hope the essay helped you.

If you’re looking for more, here are essays on other interesting topics:

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Riskwork: Essays on the Organizational Life of Risk Management

Professor of Accounting

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This collection of essays deals with the situated management of risk in a wide variety of organizational settings—aviation, mental health, railway project management, energy, toy manufacture, financial services, chemicals regulation, and NGOs. Each chapter connects the analysis of risk studies with critical themes in organization studies more generally based on access to, and observations of, actors in the field. The emphasis in these contributions is upon the variety of ways in which organizational actors, in combination with a range of material technologies and artefacts, such as safety reporting systems, risk maps, and key risk indicators, accomplish and make sense of the normal work of managing risk— riskwork . In contrast to a preoccupation with disasters and accidents after the event, the volume as a whole is focused on the situationally specific character of routine risk management work. It emerges that this riskwor k is highly varied, entangled with material artefacts which represent and construct risks and, importantly, is not confined to formal risk management departments or personnel. Each chapter suggests that the distributed nature of this riskwork lives uneasily with formalized risk management protocols and accountability requirements. In addition, riskwork as an organizational process makes contested issues of identity and values readily visible. These ‘back stage/back office’ encounters with risk are revealed as being as much about emotional as they are rationally calculative. Overall, the collection combines constructivist sensibilities about risk objects with a micro-sociological orientation to the study of organizations.

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Home — Essay Samples — Business — Management — Risk Management

Essays on Risk Management

Risk management is a critical aspect of any business or organization, as it involves identifying, assessing, and prioritizing risks, and implementing strategies to minimize, monitor, and control the impact of these risks. Given the importance of risk management, it is essential to explore various essay topics related to this field in order to gain a deeper understanding of its principles and practices.

Importance of the Topic

The topic of risk management is crucial for businesses and organizations to understand and implement, as it can have a significant impact on their success and sustainability. By identifying potential risks and developing strategies to mitigate them, businesses can minimize the likelihood of financial losses, operational disruptions, and damage to their reputation. Additionally, effective risk management can also help businesses capitalize on opportunities and make informed decisions that lead to long-term growth and success.

Furthermore, risk management is not limited to just financial risks; it also encompasses areas such as cybersecurity, supply chain management, legal and regulatory compliance, and strategic planning. With the increasing complexity of business operations and the ever-changing global landscape, the need for effective risk management has become more critical than ever.

Advice on Choosing a Topic

When selecting a topic for a risk management essay, it is important to consider current and relevant issues within the field. This could include emerging risks such as cybersecurity threats, global pandemics, climate change, or geopolitical instability. Additionally, exploring case studies of successful risk management practices or analyzing the impact of risk management failures can provide valuable insights for an essay topic.

Another approach to selecting a topic is to focus on specific industries or sectors, such as healthcare, finance, manufacturing, or technology, and examine the unique risk management challenges and strategies within each. Additionally, considering the role of technology and data analytics in modern risk management practices can also be a compelling essay topic.

The field of risk management is vast and multifaceted, offering a wide array of essay topics to explore. By delving into the various aspects of risk management, from its fundamental principles to its application in different industries and contexts, students and professionals can gain a deeper understanding of its importance and relevance in today's business environment. Whether it is addressing emerging risks, analyzing case studies, or examining the role of technology, there are countless opportunities to delve into the complexities of risk management through essay writing. Ultimately, by selecting a relevant and compelling topic, individuals can contribute to the ongoing dialogue and advancement of risk management practices.

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Risk Management and Its Types Essay

Introduction, operational risks, social risk, works cited.

Risk management refers to the process of identifying, assessing, and prioritizing risks, as well as consequent application of measures to monitor, minimize, and control their effects (Frame 53).

Risks emanate from several occurrences such as financial uncertainties, project failures, legal liabilities, credit difficulties, accidents, and other unpredictable events. Risk management standards apply avoidance of risks by organizations.

Methods, goals, and definitions of risk standards depend on field of application. Types of risks include social risks, operational risks, financial risks, credit risks, currency risks, quantitative risks, market risks, and project risks (Frenkel and Rudolf 26).

Types of risk management differ based on an organization’s goals, objectives, and operations. Risk management plays a vital role in promoting organizational growth and success.

Operational risks refer to risks encountered by organizations owing loses experienced from execution of internal activities. Operational risk management focuses on mitigating risks incurred due to operations executed by organizational systems and people.

Operational risks include fraud, physical risks, and legal risks (Hutter and Power 33). Basel II regulations define operational risk as probability of an organization’s exposure to failures in operations, systems, or people due to certain events external to an organization (Frenkel and Rudolf 36).

The difference between operational risk management and other types of risk management is that operational risk management does not earn profits for organizations. Organizations are aware that people, systems, and organizational processes are prone to errors that expose them to losses.

The degree of losses that an organization is willing and ready to handle determines its ability to manage operational risk (Hutter and Power 34).

Types of operational risks include employee errors, system failures, fraud, criminal activity, and natural disasters such as floods and fire (Hutter and Power 35).

Internal processes such as employee training, staff development, media communication, stakeholder management, and product or service development are common sources of operational risks (Hopkin 31).

Other examples include employment practices, execution and process management, workplace safety, and business practices (Khatta 34). Operational risk arises from failures or weaknesses in these processes (Frenkel and Rudolf 29).

For example, if employee training does not give desired results or stakeholder management does not meet goals and objectives, operational risks arise.

Attributes of operational risks include emotional effects, financial loses, increased costs, reduced productivity, reduced effectiveness and efficiency, and poor results.

Social risk refers to risks encountered due to factors such as age, gender, religion, culture, and race (Khatta 39). Social risk management refers to a framework that focuses on preventing people from effects of social risks by presenting protective and coping strategies.

According to research, poor people are the most vulnerable to effects of social risks (Hopkin 44). Several classes of factors expose individuals to social risks.

Examples include health, life cycle, economic situation, environmental aspects, as well as administrative and political factors (Khatta 42). Health risks expose individuals to injuries, disabilities, and illnesses.

In extreme cases, people are exposed to pandemics that have severe effects. Life cycle is associated with birth, age, and death. Economic situation determines availability of employment opportunities to individuals.

Discrimination is one of the risks experienced under administrative and political factors. Discrimination leads to politically induced malpractices such as denial of social privileges such as human rights and freedom (Schutt 82). Discrimination is also associated with religion and race.

Attributes of social risks include lack of cohesion in communities, racial and social segregation, religious intolerance, and division of people into socio-economic groups (Khatta 53).

Gender is another common aspect of social risk. Researchers from the University of Amsterdam and Columbia Business School found out that women take fewer risks than men (Hopkin 54).

In comparison, women perceive risks to be higher in the financial and ethical areas but lower in the social arena. Women take more social risks than men, while men take more financial risks than women.

Social risks that women take include advancing careers at advanced ages and giving their opinions regarding religion or gender equality at meetings and in public (Hopkin 55). Men and women behave differently when faced with social risks.

This difference in behavior is attributed to varying perception of social risk (Schutt 89). Each gender perceives risk as less or more risky depending on length of exposure.

Risk refers to probability that a certain activity will lead to a certain loss. On the other hand, risk management refers to the process of identifying, assessing, and prioritizing risks, as well as consequent application of measures to monitor, minimize, and control effects.

Risks emanate from several occurrences such as financial uncertainties, failure of projects, legal liabilities, credit difficulties, accidents, and other unpredictable events. Two common types of risks include social risk and operational risk.

Operational risk is associated with risks encountered by organizations owing to execution of internal activities.

It focuses on risks incurred due to operations executed by organizational systems and people. Social risk refers to risk associated with religion, gender, race, place of origin, age, and socioeconomic class.

Frame, James. Managing Risk in Organizations: A Guide for Managers . New York: John Wiley & Sons, 2009. Print.

Frenkel, Michael, and Rudolf Markus. Risk Management: Challenge and Opportunity . New Opportunity: Springer, 2007. Print.

Hutter, Bridget, and Power Michael. Organizational encounters with Risk . London: Cambridge University Press, 2005. Print.

Hopkin, Paul. Fundamentals of Risk Management: Understanding, Evaluating, and Implementing Effective Risk Management . New York: Kogan page Publisher, 2012. Print.

Khatta, Robert. Risk Management . New York: Global India Publications, 2001. Print.

Schutt, Harold. Risk Management: Concepts and Guidance . New York: DIANE Publishing, 2003. Print.

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Table of content

Risk management: what is it?

Importance of risk management in business, risk management helps in risk identification, analysis, control, and treatment of the risk, avoid scams, data security, prevention of crime, prevents theft, conclusions.

The history of economic systems and financial markets in recent years has been characterized by many cases of crisis and, in the most pathological situations, of failures that have certainly left their mark. However, there is a very recurrent element that characterizes these negative situations. It is the misalignment between performance profiles and risk profiles within the decision-making system and corporate governance. The strong emphasis given to the need to achieve performance targets, especially in the short term, has often left little room for evaluation, and to quantify risk where possible associated with certain types of choices. The result was that there was a misalignment between the maximization of results compared to the capacity of companies and banking and financial companies to create value.

It is no coincidence, therefore, that one of the most important legacies that history has left us in recent years is the growing attention to risk assessment and management issues, in a word that is commonly called risk management.

What is risk management? This is the question that many people ask themselves when approaching the world of financial markets. Whether you are an investor, an entrepreneur or an aspiring one, you have found yourself in the position of having to understand exactly what risk management is and what the right techniques are to avoid the loss of your capital.

Risk management is the continuous process of identifying, analyzing, evaluating, and managing exposures to losses and controlling risk and financial resources to minimize the negative effects of a loss.

The main function of the set of risk management techniques is to maximize profits, trying to reduce the risk of losses.

The losses that the individual seeks to minimize with risk management can come from:

financial risks
operational risks
political and environmental risks
strategic risks

More extensively, risk management addresses the downsizing of all those factors that prevent an individual or a company from achieving its objectives.

Although accidental losses are unpredictable and unplanned, there are methods included in risk management that can make risk events more predictable.

The more predictable an event, the lower the risk as it can be prevented or minimized. Furthermore, unexpected expenses can be estimated and budgeted.

This is risk management, the process to make the losses more predictable. This is the definition that can be given of the whole set of techniques that seek to secure, to the extent possible, the investor's capital.

The key to proper risk management is to control all the functions of your risk management plan and make sure that they are necessary and effective to reduce the overall cost of operational risk.

Risks are part of life as much as they are part of any organization or company planning. It’s quite natural to face risks in your business that needs to be handled in such a way that it does not result in a loss to the business or business services that are provided. Risk management is the forecasting or evaluation of possible risks and identifying the process to avoid or overcome it. It utilizes the right methods and tools to handle the threat. With a risk management plan, you can always be prepared in advance and let the business not be affected by it. Here are a few reasons why risk management is essential for business.

One of the major tasks of risk management is to identify a risk when it is about to rise or has risen. It can categorize various risks related to financing, operations, strategic, and even referred to like the environment and the public. This would either help you to avoid the chance at the early stages or come up with plans on facing the risks.

Once a risk is identified, it is important to analyze it to see how it will affect the business and come up with measures to control or overcome it. Risk has to be treated carefully so that it doesn’t change the entire industry. The probabilities of loss and gain have to be discussed before preparing to deal with it.

Risk management helps your business to avoid scams and analyses how it would affect the image of your business. Further, they help your business by investigating the source of fraud and helps in filtering the scam. They also help in building up the tarnished image if involved in a scam or fake scams.

It assures that all your essential data regarding the business are safeguarded and does not fall into the wrong hands. Data security is vital in business, and the risk management team can help you with the necessary protection. They can also come up with data recovery, backups, and insurances for your business data to not lose it and affect your business.

They make sure that the business decisions you make are legally approved and help in preventing crime in business. Furthermore, they see to the security of your employees too and assure that laws are not broken. This helps in not just creating an impression about your business to your employees but also to visitors and consumers.

One of the major risks for a business company is the theft of an idea or data. This can lead to the loss of a company. With the right risk management team, they will assure that your thoughts and business plans are safe and are not leaked. With simple measures and tracking employees, it can be assured that data leakage does not happen through unfaithful employees. They also help in keeping an eye on the inventory.

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Risk management as a stream helps in securing your business to the next level. It is always best to have prevention, and having an active risk management team does precisely. It may seem scary to the possible risks. But with the right directions and solutions, it’s always easy to overcome them or even face them. Having a risk management team adds extra security to your business. It helps you in a-z of all the disasters, security, and risks of the business. If you don’t have a risk management team yet, it is high time you get one.

The growing challenges that characterize industrial, banking, insurance, and financial companies require the constant presence within the decision-making and control system of these organizations of skills and dedicated activities that allow them never to lose sight of the risk profile. It is a central theme in the life of companies. It is important, however, that this presence has the nature of a substance and does not only serve to comply with regulatory requirements or to construct façade solutions that serve no purpose concerning the responsible management of the business and the sustainability of the life of these companies over time.

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Essay on Risk: Meaning, Consequences and Types | Business | Management

In this essay we will discuss about:- 1. Meaning of Risk 2. Fire Fighting 3. Consequences of Risk 4. Types of Risks 5. Business is always Risky 6. Causes of Risk 7. SWOT Analysis 8. Requirement of Good Risk Management 9. Qualitative/Quantitative Analysis 10. Risk Manager 11. Disaster 12. Other Causes.

Other Causes

Essay # 1. Meaning of Risk:

Risk is the possibility of an unacceptable outcome or the absence of acceptable outcome. Risk management is identifying and controlling the undesired outcome. Risk may or may not happen and one may not know until it happens and there is always uncertainty. Inherent uncertainty cannot be eliminated. But it is possible to reduce the effect of uncertainty. Dealing with risk means dealing with uncertainty.

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Since the risk is uncertain one has to guess the probability of risk occurrence, consequences and causative factors and manage it. The probability analysis will help to reduce the extent of uncertainty. Risk events are not only uncertain, but also lurk with possibility of loss. Hence need arises for probability analysis. But probability analysis is subjective and so it is not precise and accurate.

Essay # 2. Fire Fighting :

A successful fire-fighting exercise save the people and the organization from fire i.e. crisis. It produces dramatic effect and in contrast a good risk management process is dull and quiet with no excitement. So a firefighter is noticed and rewarded more often than a good risk manager. It is antithesis of risk management but it is the reality. It is impossible to eliminate risks altogether. Sometime risk and uncertainty can be a rewarding experience by opening the gates for new business.

Essay # 3. Consequences of Risk :

Risk affects finance and non-finance matters. But the consequences of all most all risks are measured in terms of money. Despite innumerable risks faced by people in their day to day life the world goes on and so also banks, insurance companies and other financial organizations.

So there is no need to panic or fear the end of the world. What is required is resilience and self-confidence so that one can pull out of crisis and restart the project. Standard risk model include risk event, triggering factor, probability, impact and loss. Concatenation is series of risk events, occurring one after another, their interplay and impact.

Risk management include various steps viz., planning, identification of risk, analysis, prioritization, implementation, monitoring, successfully preventing escalation, mitigation and deal with new risks.

In risk management one has to avoid risk that does not add value and stay flexible in unresolved issues, maintain communication with key functionaries and address risky items first. Risk can be deceptive like an empty petrol drum appearing innocuous but can contain petrol vapour and explode in heat or fire.

ADVERTISEMENTS: (adsbygoogle = window.adsbygoogle || []).push({}); Essay # 4. Types of Risks :

Internal Risks, External Risks, Financial Risks, Technology Risk, Business Risk, Organizational Risk, Cultural Risk, Security Risks, Management Risk, Legal Risk, Environmental Risk, Quality Risk, Process Risk and so on.

I. Common Risks :

Cost overrun, loss of key employees, funds constraints, environmental threats, Unrealistic objectives, Labour strikes, work to rule, complex technology, New unproven technology, non-availability of resources and materials, Unrealistic performance goals, standards that are not easily measurable, Lack of involvement, resistance to change, seasonal and cyclical events, Lack of business experts, Lack of technical experts, Lack of knowledge and skills of business, incompatible organizational structure, cultural barriers, theft of customer data or company information, poor skills and ability of the managers, high volume and complexity of business.

II. Catastrophe Risk :

Earthquakes, Cyclone, floods, landslide.

III. Political Risk :

Government policy, civil unrest, acts of war, terrorist attack and social instability.

IV. People Risk :

1. Lack of motivation, low productivity

2. Dishonesty

3. Theft of real and intellectual property

4. Sabotage, poor quality, conflicts with other team members

5. Lack of discipline

6. Lawsuits, harassment claims.

Essay # 5. Business is always Risky :

Business involves risk although entrepreneurs focus more on benefits from business. Risk is integral and unavoidable part of business. All risks do not generate profit. But profit is the result of risk taking. If there is an opportunity with profit, then there is always element of risk. The success lies in one’s ability to see the profit in the risk. It is important to choose those opportunities where there is less Likelihood of adverse impact. Business is becoming more and more complex and hence there is compulsion to manage complex risks.

If a customer does not get value for money a firm cannot remain in business for long. If a company can identify more options, to deliver value to customers then it is likely to reduce the risk by choosing the best option with less risk. The way to design number of options depends on innovation and research and also SWOT Analysis.

Among the risks demand risk, competition risk and capability risk are very important. Demand risk relates to customer willingness to buy. Competition risk lies with competitor ability to provide better value for money. Capability risk lies with company’s own shortcomings and deficiencies.

Nowadays most companies outsource certain jobs on cost and quality considerations. The moot point is what to outsource? Can it include critical areas of business? Conventional wisdom says ‘No’. It is because outsourcing has its own risk and not risk free.

The purpose of risk management is to eliminate or defuse the adverse impact of risk. But a more important objective is to take full advantage of the risky opportunity and generate maximum profit or benefit as otherwise risk management will become a ritual.

Risk has potential to cause damages to person or property and financial loss, but at the same time, it has a potential for profit. Organizations will take risk when the benefit arising out of risk outweigh the consequences of undesirable outcome.

The risk management plan shall contain details of the ways and means to carry-out the risk processes and also communicate the details and the status of the process. Here lies the risk of communication gap which is a common deficiency in every organization.

Bank business consist of deposit mobilization, lending, remittance, collection, transfer of funds, safe deposit lockers, etc. All of them carry their own risk. In addition, customers (borrowers) financial problems, get transferred to bank. The function of insurers is to protect others from risk and consequently carry all those risks on their shoulders so their position is more precarious than banks.

Essay # 6. Causes of Risk:

1. Over confidence on overrated officers

2. Speculative activities

3. Manipulation of accounts

4. Too big to fail attitude

5. Aggressive business model

6. Inadequate disclosure

7. Weak audit system

8. Lack of sound knowledge of business and casual attitude on risk management

9. Vague description of roles and responsibilities.

10. More than one person handling the same job without clear demarcation of duties

A banker wears several caps, accountant, human relation manager, computer savvy, marketing expert with Knowledge of customers business more particularly that of borrowers.

It is not easy to find good number of people in an organization with sound and integrated knowledge on all the above matters. In addition risk measurement requires sound mathematical and statistical knowledge. Most bankers are at best good in arithmetic’s and not mathematics and statistics.

Risk management vary between stable period, uncertain political situations and unpredictable economic conditions. An organization where the top person is a micro manager he will burn himself by his work style and stifle the juniors by not allowing them to do the tasks by themselves.

Indecision, ill-defined job, vague expectation, poor morale, frequent changes, lack of financial resource cause risk. Loss of key personnel, financial constraint civil unrest, terrorist acts, technology breakdown, data loss lack of skill, experience and expertise also cause risk.

Essay # 7. SWOT Analysis :

SWOT analysis is a technique to understand the organization’s Strength, Weakness, Opportunities and Threats (SWOT). In view of dynamic nature of environment every organization should do SWOT Analysis, to understand the relevance of their strength, their vulnerability on account of their weakness, emerging opportunities and the threat from competitors, technological innovation etc. It is more important to do so while introducing new products or taking new projects as otherwise the organization will only take blind shots and not a planned risk management.

Essay # 8. Requirement of Good Risk Management :

1. Adequate number of staff

2. Competent staff (Capability, skill etc.)

3. Well-designed training and development programme for staff at all levels

4. A well-organized customer relationship

5. Ongoing efforts to understand the customers need and deliver the goods/ services to their full satisfaction

6. Clear understanding and capacity to tackle known risks

7. Ability to foresee remotely possible risk and plan to manage it

8. Maintenance of check list/log book by everyone involved in risk management and also line staff. It will help the persons from the missing steps.

9. Risk management decision is always data based. But the problem is that the data are, usually inadequate, imperfect, delayed, or not available; it is rare when one can get all the information needed. Hence the ability to judge whether the missing information is critical or not is important.

10. In real life situation, everyone takes decision with certain level of ignorance or inadequate data and hence risk is unavoidable

11. In risk management “Business as Usual” attitude will not be helpful.

12. People are not infallible and so weak signals or minor symptoms can escape attention.

13. When there is repeated small errors or lapses each by itself may be of little consequence. But cumulatively they will cause catastrophic risk.

14. Assumptions may fail.

15. An easy attitude to acceptable risk may lead to unacceptable level of danger.

16. Men are fallible and if some think they are infallible there is definite possibility of risk.

17. Discrepancy is easy to notice in hindsight, but hard to see in real time

18. Small discrepancies have tendency to enlarge into big problem

19. Failure is functional and there is limit to foresight, so risk manager should know how to contain or tackle the adverse impact of failure

20. Success breed confidence and then complacency

21. Complacency is the cause for accident

Those who believe life is preordained or who have strong belief on fate and destiny or cynic in nature cannot be good risk managers. They will blame on bad time and plead helplessness. A good risk manager is always confident that he can avert the crisis or mishap by predicting and planning to contain the untoward or unexpected happenings.

It is not that the manager will succeed every time. But what is important is resilience that means ability to move on the track despite the failure and tackle new risks.

Focus on Failure:

Success and failure are like reverse and obverse of a coin. Both exist together while success is appreciated, failure is criticized or even punished. Generally it is said ‘play to win and not to avoid defeat’. But it is better to be failure focused in risk management and if failure is identified and tackled in time, it will automatically contribute for growth and success.

1. Unremitting attention to track minor lapses,

2. Sensitive to operational problems,

3. Not to panic in crisis situation,

4. Simplify the complex issues so as to understand them in a better manner are necessary.

Banks are in the business of lending for over 100 years or have experience of several decades. Risk management received sharp focus in the last 30 years, especially after introduction of Basel norms. The credit risk management techniques got sophisticated. Despite all these developments NPA has grown to an alarming proportion. “Poor credit appraisal” by banks is a major cause.

It means inadequate and imperfect risk assessment. In fact, the banks panic when NPA grow overwhelmingly and plunge into action to recover the bad loans expeditiously. That is ok. But for a running organization, more than recovery, streamlining and strengthening, credit risk management is very important for a durable solution to the problem. One time recovery alone will not do. The problem will recur again and again. It is therefore necessary to be focused on failure in order to find a permanent solution.

Chain of Risks :

Good risk management involve systematic attempt to identify possible source of the problems. Sometime it is necessary to examine the cascading or concatenation effect of risk. Every risk event may not cause catastrophe, but cumulative effect of series of minor lapses unchecked and uncontrolled leads to crisis situation.

Being alert to minor issues and problems ultimately help to avoid crisis and firefighting. The likelihood of risk and its impact are two different aspects of the risk event. Risk management team focus is on the consequences of risk and not business opportunities, although opportunities would have given rise to risk.

A risk averse and cautious person decision will differ from bold and brash or pragmatic person. A manager with unduly risk averse attitude cannot help the organization to handle risky opportunities for growth and profit. In risk management it is important to understand and bridge the gap between anticipated and actual results.

In order to understand what risk management “can do” and “cannot do” it is necessary to plan, identify, examine the impact, develop strategies to handle, monitor and control them. A good risk management is always proactive and not reactive or fire-fighting.

It is needless to add that a planned approach will lead to better risk management as otherwise one will suffer surprise and shock. Risk management is required even in a stable and well defined environment. But current environment world over is filled with chaos and complexity. Naturally there will be uncertainty and risk management should deal with uncertainty, chaos, and complexity.

Essay # 9. Qualitative/Quantitative Analysis :

Risk analysis should adopt both qualitative and quantitative techniques in risk assessment. It requires skill to accurately forecast the probabilities of risk occurrence and its intensity. Quantitative measure use both historical data and intelligent projection of the future. While quantitative is numerical qualitative is impressionistic.

Quantitative skill requires statistical and mathematical skill, while qualitative will call for intelligent guess and imagination. Certain amount of vagueness is there in both calculations. But without these calculations one cannot assess the extent of risk and impact.

Essay # 10. Risk Manager :

The operating staff may look at the risk manager’s observations threatening and consider him un-business like and an obstacle. So they may avoid consulting or listening to him. While the risk manager would have discouraged a particular loan because of high risk, Operating staff may be willing to give by charging risk premium on the interest.

Many risk managers recommend implementation of TQM (Total quality management) or ISO 9000 certification for risk reduction although they are primarily meant for quality improvement. Better quality means less risk. But how far the organizations are willing to implement TQM or ISO 9000 is a moot point.

Risk management requires risk assessment, periodical reporting, disaster recovery plan, crisis management plan and use risk check list. They may be view the requirements as additional burden on operating staff diverting their attention from business development.

Essay # 11. Disaster :

The biggest disaster the world has seen in recent times is the demolition of World Trade Center in New York. In this case authorities had enough warning from intelligence agencies about terrorist attack on World Trade Center.

The possibility of demolition of the tower by an aircraft was indicated and also the need for emergency evacuation in case of calamitous happening. Yet the disaster occurred resulting in loss of life and property. The event shattered people’s confidence on the ability of the government to protect them. This is a lesson for risk managers. Similar was the case in Bhopal gas leak tragedy.

In both cases repeated warning though vague and recurrence of minor lapses were ignored without applying serious thought. So also in subprime crisis of 2008 in USA and Harshad Metha Scandal in India during 1992, warning signals, were ignored and repeated minor lapses were covered up and consequently huge financial crises engulfed in catastrophic way.

The financial crises in the past were always originated or abetted with dishonest and fraudulent motives of atleast quite a few people in the organization, by taking advantage of the weakness and gaps in system and procedure in the banks. Banks could have easily plugged the loopholes. But it is not done in time due to carelessness and complacency.

Essay # 12. Other Causes :

(1) Problems may relate to machines, equipment’s, staff training and development, marketing, etc. But many times solutions do not lie with one department but with more than one department. Engineering problem may need financial solution, marketing problem may depend on H.R.D. solution. The problem is lack of understanding by the concerned departments and lack of coordination between departments.

(2) Sometime risks are identified, but no action plan for the solution is drawn and responsibility fixed on particular person/department.

(3) Vague description of role and responsibilities, haphazard organization matrix, disorganized team of project manager, I.T. Manager and Finance Manager, Internal Conflicts, etc.

(4) So also complex procedure and rules; questionable reliability of support from the top management aggravate the problem.

(5) Lack of focus, absence of reporting system, routine and easy going attitude, resistance to change, Lack of trust and openness, lack of culture of encouragement and appreciation of good work, but well entrenched punishment system for errors and such other negative practices create risks.

(6) The managements of the organizations when they retrospect may often find to their horror or discomfiture, that they have failed to do many things which ought to have been done and did many things which ought not to have been done and that have lead to the sorry state of affairs in the organizations.

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The integration of risk into management control systems: towards a deeper understanding across multiple levels of analysis

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Published: 15 May 2024

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Martin R. W. Hiebl ORCID: orcid.org/0000-0003-2386-0938 1

The integration of risk into management control has recently received increased attention in the management accounting and control literature. Much of this research has focused on the organizational and individual actor level. However, some studies suggest that the integration of risk into the organizational control package may equally be influenced by forces operating at other levels of analysis– including the economic and political level and the organizational field level. In this guest editorial for the special issue on “Courageous Risk Governance: Enabling Resilience, Autonomy, and New Thinking,” I therefore discuss how our collective understanding of the integration of risk into management control could be enhanced by research at multiple levels of analysis. The papers included in this special issue show that when this integration is successfully managed, organizations can achieve valuable outcomes, such as increased resilience. For both practitioners and academics, future research on such integration therefore seems fruitful and necessary. This article provides ideas for particularly relevant questions about this integration and for theories that can guide such research.

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1 Risk and management control systems

During the past few years, management accounting and control scholars have increasingly started to study risk management, risk governance, and their integration with other management control systems. For instance, in a recent review, Braumann et al. ( 2024 ) have analyzed research on enterprise risk management (ERM), an approach to study organization-wide risks holistically, from a management control perspective. They identified 69 articles in this domain, of which the vast majority has been published after 2010. At the organizational level, Braumann et al. ( 2024 ) found that there are various connections between risk management and other control systems and they suggest a complementarity perspective to further analyze the role of risk management as part of the organizational control package. If such integration is successful, organizations may gain increased risk awareness and other risk-related outcomes (Braumann, 2018 ), but may also benefit from improved resilience, autonomy, and new thinking. The latter was the focus of our call for papers that led to this special issue of the Journal of Management Control . Besides this focus on far-reaching organizational outcomes of forward-looking risk management and risk governance approaches, the special issue sought to investigate, in particular, the integration of risk into management control for reaching such outcomes.

The increased interest in the management accounting and control literature in risk management, risk governance and other forms of steering risk is often attributed to the financial crisis of 2008 and its aftermath (e.g., Braumann et al., 2024 ; Huber & Scheytt, 2013 ; Soin & Collier, 2013 ; van der Stede, 2011 ). This aftermath includes various new forms of regulation, professional frameworks and research paradigms that aim to modernize traditional approaches to risk management and make them more strategic and better intertwined with other business operations (e.g., Committee of Sponsoring Organizations of the Treadway Commission 2017 ; Prewett & Terry, 2018 ; Stein & Wiedemann, 2016 ). Although the impact of such frameworks and paradigms remains in debate (e.g., Arena et al., 2017 ; Crawford & Jabbour, 2024 ; Huber & Scheytt, 2013 ; Kaplan & Mikes, 2016 ; Power, 2009 ), most commentators agree that these frameworks have had an impact on how contemporary organizations perceive and try to handle risk (Hayne & Free, 2014 ; Viscelli et al., 2016 ).

In line with a more holistic view towards risk as proposed by ERM proponents such as COSO (2017), recent studies have presented evidence that risk is increasingly integrated into and affects the functioning of management control systems (Bracci et al., 2022 ; Braumann, 2018 ; Braumann et al., 2020 ; Posch, 2020 ; Rana et al., 2019b ). While these studies have documented the fact that risk management and management control increasingly converge in many organizations, this cannot be observed in the same way in all organizations and, consequently, there is considerable variance between organizations in how such (non-)integration may play out (Mikes, 2009 ). Mikes and Kaplan ( 2013 ) have therefore advocated a contingency theory of risk management that may help to disentangle the factors driving the implementation of risk management and its integration with other control systems.

However, as shown in the recent review by Braumann et al. ( 2024 ), it still seems a long way before we arrive at a full understanding of why organizations deal with risk the way they do, and how they consequently integrate risk with their management control systems. Likewise, we still have limited knowledge of what organizations might gain from specific approaches of dealing with risk and their interplay with other management control systems (Braumann et al., 2024 ). While Braumann et al. ( 2024 ) primarily proposed to look at the organization-level complementarity between risk management and other management accounting and control systems, studies such as Hayne and Free ( 2014 ) suggest that the current prominence of risk management frameworks such as COSO can also be attributed to skillful institutional work that is performed beyond individual organizations and at the organizational field level or the more general political and economic level. In addition, there is evidence that such institutional work does not lead to the same outcomes in all countries. Regulation of risk management, which also affects its integration into management control, shows considerable variance between countries (e.g., Bledow et al., 2019 ; Maffei, 2021 ; Maffei & Spanò, 2021 ). How risk management is performed and integrated into management control is thus not a choice that is purely organizational or driven by individual actors but is considerably affected by the larger political and economic environment. In this guest editorial, I thus propose that future research on the integration of risk into management control systems should not only look at the organizational level and the individual level (although these continue to be important), but should also increasingly incorporate other levels of analysis, including: the economic and political level, the organizational-field level, and the more micro level of multiple actors.

In Sect. 2 , I detail how future research could make use of these various levels of analysis to deepen our collective understanding of the integration of risk into management control systems. In Sect. 3 , I then discuss how the articles included in this special issue contribute to such understanding. Section 4 concludes this guest editorial with its most important implications.

2 Towards a deeper understanding across multiple levels of analysis

There are various classifications of how different levels of analysis can be classified in organizational research and psychology (e.g., Coleman, 2000 ; Dansereau et al., 1984 ; Dionne et al., 2014 ; Hofstede et al., 1993 ). Many of these classifications primarily look at the organizational level as the macro level of analysis, and sub-organizational levels, such as teams and individuals, as micro levels of analysis (e.g., Foss et al., 2010 ; Yammarino et al., 2005 ). For this article, I adopt the idea that there are sub-organizational levels, which are important to understand how risk management is integrated into management control. As indicated by prior research, individual actors, such as risk experts or controllers, may indeed be highly influential in this regard (Braumann et al., 2024 ; Hall et al., 2015 ; Tillema et al., 2022 ). At the same time, interactions between groups of actors– for instance, between risk managers and management accountants (Giovannoni et al., 2016 ), or between risk managers and operational managers (Hall et al., 2015 ; Mikes, 2009 )– may also contribute to explaining how risk is (not) integrated into management control, and why there are variations of such integration not just between, but also within, large organizations. For sub-organizational levels of analysis, I therefore distinguish between the level of individual actors and the level of multiple actors (see Fig. 1 ).

As indicated in Sect. 1 , risk management phenomena are often driven by factors that lie beyond individual organizations, but are determined in organizational fields or at the economic and political level. This notion is not uncommon for accounting phenomena as they are often driven by law and regulation (Dennis, 2013 ). To better understand how accounting phenomena are framed at such macro levels, and how they may affect and are affected by organizational fields and individual organizations, Dillard et al. ( 2004 ) proposed a three-level model consisting of the economic-political level, the organizational-field level, and the organizational level. For structuring the following discussion, I therefore additionally include these three levels of analysis.

The resulting five levels of analysis are shown in Fig. 1 . Importantly, these five levels of analysis do not work in isolation but, as explained in detail by Dillard et al. ( 2004 ), do affect each other (see the arrows between levels in Fig. 1 ). Additionally, the effects from one level to the other are not necessarily hierarchically cascading as depicted in Fig. 1 . For instance, the institutions at the economic and political level may not only be influenced by organizational fields, but could also be affected by individual organizations, group of actors or individual actors. Relatedly, while the following discussion is structured along the five levels of analysis, research does not need to be strictly focused on one level of analysis, but may focus on multi-level or cross-level effects (Yammarino et al., 2005 ). The following potential topics for future research and theories to address such topics are illustrative only but shall now be detailed to showcase their potential influence on how risk is integrated into management control.

Future research on the integration of risk into management control across multiple levels of analysis

3 Economic and political level

The most macro level considered here, the economic and political level, is focused on the overarching political, economic, and social issues in a given society. Norms and values that are shaped and changed at this level can be expected to influence the members of the given society (Dillard et al., 2004 ). Viewed from an institutional-theory perspective, norms and values represent institutions that can more broadly be defined as taken-for-granted assumptions that guide our everyday behavior (Harmon, 2019 ). However, those institutions do not develop out of “thin air,” but are influenced and changed by organizational fields, individual organizations, and actors inhabiting a society (Barley & Tolbert, 1997 ; Englund & Gerdin, 2018 ; Hiebl, 2018 ).

Applied to the study of risk management, risk governance, and management control, we can expect that laws or regulations that call for greater integration of risk into management control are shaped by certain actors at the economic and political level. For instance, in its most recent edition, the ERM framework by Committee of Sponsoring Organizations of the Treadway Commission ( 2017 ) more prominently stresses the integration of risk management, strategy work, and performance, clearly pointing to greater integration of risk into traditional management control practices, such as strategic planning and performance management (Balakrishnan et al., 2019 ; Bracci et al., 2022 ). However, not all countries have equally adopted such integration principles into their national laws and regulations (Bledow et al., 2019 ; Maffei & Spanò, 2021 ). For instance, Rana et al. ( 2019a ) analyze the case of regulatory reform in Australia that aimed to better integrate risk and performance into public sector entities. They conclude that an overly strong focus on compliance and regulatory accountability hindered closer integration of risk into performance management practices. The case study by Rana et al. ( 2019a ) can thus be read as showcasing how national regulation affects the integration of risk into management control. Given clear variation in risk management laws and regulations between countries (Bledow et al., 2019 ; Maffei & Spanò, 2021 ), it would be interesting to understand how such variation has emerged, and thus better recognize potential differences between countries in terms of the integration of risk into management control. Such research could also pave the way for regulators and policymakers to better understand what steps might be needed to achieve increased integration of risk into management control, if so desired.

For such research, various strands of institutional theory might be suitable theoretical lenses. For instance, institutional work perspectives (Canning & O’Dwyer, 2016 ; Lawrence et al., 2009 , 2011 ; Modell, 2022 ) could be useful to analyze how various actors try to push risk-related law and regulation towards their desired direction and what tactics they apply in this endeavor. Likewise, institutional logics perspectives (Thornton et al., 2012 ; Thornton & Ocasio, 2008 ) could be used to analyze how the prevalence of certain logics in a society change over time and how this affects the making and changing of law and regulation on risk and its integration into organizational control systems.

3.1 Organizational field level

The organizational field level is primarily concerned with the context in which individual organizations and actors are embedded, such as industries, markets, or professional associations (Dillard et al., 2004 ; Quinn & Hiebl, 2018 ). As argued by Barley & Tolbert, 1997 , p. 93), individual actors and organizations are “suspended in a web of values, norms, rules, beliefs, and taken-for-granted assumptions, that are at least partially of their own making.”

A prime example of institutions that have been created at the organizational field level is the ERM framework by the Committee of Sponsoring Organizations of the Treadway Commission ( 2017 ). This committee– now regularly known as COSO– was formed in 1985 and is supported by five US professional associations, including the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Internal Auditors (IIA), and the Institute of Management Accountants (IMA). The COSO board is comprised of board members from each of these five associations, and a chairperson (Hayne & Free, 2014 ; Landsittel & Rittenberg, 2010 ). Amongst other activities, COSO is active in the organizational field of risk managers and, most famously, has issued ERM frameworks that have much influenced field-level actors and individual organizations (Jemaa, 2022 ).

Drawing on an institutional work perspective, Hayne and Free(2014) provide a detailed account of how the initial COSO ERM framework published in 2004 gained influence and popularity over time. As indicated above, the latest and revamped edition of this framework was published in 2017, long afterHayne and Free(2014) finished their data collection in 2012. Since this latest edition of the framework has stronger links to organizational operations, strategy, and performance–and thus management control (Balakrishnan et al., 2019 )– it would be interesting to study how these changes have been developed at the organizational field level and why a stronger integration of risk and management control is now purported by COSO. Likewise, such research could also illuminate reasons why this and other international (e.g., the ISO 31,000 “Risk Management Guidelines”) and national risk management frameworks have gained varying popularity in individual countries (Bledow et al., 2019 ; Hunziker & Durrer 2021 ; Maffei & Spanò, 2021 ). From such research, we could gain a better understanding of why, across countries or fields, risk management frameworks have varying influence on the integration of risk into management control.

As suggested by Hayne and Free ( 2014 ), the institutional work perspective (Lawrence et al., 2009 , 2011 ) again seems a useful theoretical lens to make sense of empirical material from specific organizational fields. Likewise, approaches rooted in structuration theory (Englund et al., 2011 ; Englund & Gerdin, 2008 ; Giddens, 1984 ) and the paradox of embedded agency (Englund & Gerdin, 2018 ; Hiebl, 2018 ) might also help to uncover how field actors that are influenced by institutionalized risk management frameworks may nevertheless engage in changing these very frameworks. Anyhow, given the considerable impact of COSO and field-level associations on the practice of risk management and, at the same time, little research effort targeted at the political and economic level and the organizational field level so far, there is much room to contribute to a better understanding of how the integration of risk into management control gets promoted and potentially institutionalized at these macro levels of analysis.

3.2 Organizational level

The organizational level of analysis, as understood in this article, is concerned with comparisons between organizations that consider these organizations as a whole. Organization-level studies thus do not address finer differences between sub-organizational units or actors. Typical organization-level studies in management accounting, management control or risk management research compare organizations in terms of implemented practices and analyze why these practices are in place, and what these organizations might gain (or lose) from such practices. This may include questions regarding why and how certain risk management and other management control practices complement or substitute each other at the corporate level, and what effects from such complementarity or substitution the organization as a whole might face (Braumann et al., 2024 ).

Thus far, the organizational level of analysis is probably the most researched in terms of why and how risk is integrated into management control or not, and existing research sheds light on a series of antecedents of such integration, and its outcomes and associated mediators or moderators (Braumann et al., 2024 ). However, many of these works have delivered insights on this integration more or less in passing and it was not the prime focus of their research efforts. For instance, many qualitative research studies offer a plethora of insights into how risk management is performed and how it interacts with other practices, and thereby also offer some insights into its integration with other management control devices (e.g., Arena et al., 2010 ; Arena et al., 2017 ; Hall et al., 2015 ; Mikes, 2009 ).

For more focused efforts on researching the integration of risk into organizational control packages, Braumann et al. ( 2024 ) advocate complementarity theory as a useful lens to study the interplay between risk management and other control devices and its outcomes. As the paper by Braumann et al. ( 2024 ) is fairly recent, there is no need to echo their recommendations here. But apart from complementarity approaches, contingency approaches as suggested by Mikes and Kaplan ( 2013 ) might also be useful to study the fit between organizational antecedents and risk and control practices, and the outcomes of such fit. While these complementarity and contingency approaches are mostly geared towards quantitative research, other theoretical lenses might also be useful to study the integration of risk into management control at the organizational level. For instance, the institutional logics perspective (Thornton & Ocasio, 2008 ; Thornton et al., 2012 ) cannot only be applied at the economic and political level, but also might be useful to tease out differences between organizations in terms of the integration of risk into management control. This perspective has already been applied recently in accounting studies of risk management (Metwally & Diab, 2021 ; Murr & Carrera, 2022 ) and, from the evidence presented there, it can be assumed that varying levels of integration of risk into management control across organizations could be rooted in different emphases of organizations on institutional logics, such as compliance or performance logics. Institutional logics may also compete with each other in specific organizations (Besharov & Smith, 2014 ; Pache & Santos, 2013 ), and may thus hinder or foster the integration of risk into management control. As this example of institutional logics should illustrate, organization-level studies of the integration of risk into management control not only offer much room for further quantitative research, but also for qualitative research.

3.3 Multiple actors’ level

This level of analysis is often referred to in organizational research and psychology as the team or group level of analysis (e.g., Chan, 2019 ; Yammarino et al., 2005 ). However, for the purpose of this article, the more general term “multiple actors’ level” is used, since the integration of risk into management control systems is likely to not only occur within a strictly defined team or group, but also across organizational departments, such as risk management and management accounting units (Giovannoni et al., 2016 ). So, the multiple actors’ level of analysis refers to the study of phenomena that arise through the interplay of multiple individual actors within an organization.

The integration of risk into the organizational control package seems generally possible through three different routes (Braumann et al., 2024 ):

1. the combined use of separate risk management (e.g., tone from the top) and management control practices (e.g., interactive use of budgets) that collectively secure the adequate integration of risk into management control (cf. Braumann et al., 2020 );

2. one or several integrative tools that merge elements from risk management and management control in a single tool, such as risk-based forecasting and planning (Ittner & Michels, 2017 ), or a balanced scorecard with included risk measures (Cheng et al., 2018 );

3. a combination of routes 1 and 2.

As indicated in prior research on specific practices that integrate risk into management control (Jordan et al., 2013 ; Themsen & Skærbæk, 2018 ), it seems likely that several actors are involved in the implementation and use of such practices. This interaction between multiple actors may run smoothly, but may also lead to challenges– for instance, due to the incompatibility between actors and practices (Tillema et al., 2022 ) or diverging political interests between the involved actors (Giovannoni et al., 2016 ). Another challenge could be the limited top management visibility of approaches that integrate risk and management control (Viscelli et al., 2017 ). Several available studies stress that such visibility is important for top management attention on the integration of risk into management control (Arena et al., 2017 ; Meidell & Kaarbøe, 2017 ; Mikes, 2009 ). However, such visibility may also be contested if risk managers and management accountants compete for top management access (Giovannoni et al., 2016 ). From all these findings from the present literature, it is apparent that the smooth interplay between several individual actors seems to be an important condition for a successful integration of risk into management control. While some existing studies offer insights on this interplay (Giovannoni et al., 2016 ; Arena et al., 2010 ), their numbers are still small, often focused on risk experts and less so on other actors, and suggest that the interplay is very much context-bound. Further studies are thus needed to shed more light on how the interaction between multiple actors enables the adequate integration of risk into management control in other contexts, and should not only focus on risk managers, but include the interaction between other types of actors, such as controllers, internal auditors, operational managers, and top managers.

Some useful theoretical approaches to analyze the integration of risk into management control at the level of multiple actors include various strands of institutional theory, such as organizational rules and routines (Burns & Scapens, 2000 ; Quinn, 2011 , 2014 ; Quinn & Hiebl, 2018 ). After their implementation, practices that integrate risk and management control may be repeated, eventually routinized and institutionalized (Burns & Scapens, 2000 ; Quinn, 2011 ). While this theoretical possibility is probably widely accepted, it remains an open question how this process may unfold and how potentially diverging interests between the involved actors (e.g., controllers, risk managers, internal auditors, operational managers, top managers) can be dissolved. The detailed frameworks for analyzing such routinization processes in the management accounting literature (Burns & Scapens, 2000 ; Quinn, 2011 ; Quinn & Hiebl, 2018 ; ter Bogt, Henk & Scapens, 2019 ) offer rich guidance on what factors and dynamics are most important to assess and understand in this regard.

Likewise, if research is not focused on a single integrative tool combining risk and management control, but on the interplay between separate risk management and management control practices, the routines literature can offer valuable theoretical guidance. For instance, Kremser and Schreyögg ( 2016 ) have introduced the idea of routine clusters and offer a framework to analyze under what conditions interrelated routines– such as risk management and management control routines (Nguyen et al., 2023 ; Pentland, 2016 )– may offer beneficial outcomes.

3.4 Individual actors’ level

The last level of analysis considered in this article is the level of individual actors, which focuses on and compares individuals in organizational roles, such as leaders or subordinates (Yammarino et al., 2005 ). Indeed, several articles in the accounting literature on risk management have focused on individual actors, such as risk managers, risk experts, risk owners, chief financial officers (CFOs) or controllers (e.g., Hall et al., 2015 ; Ittner & Oyon, 2020 ; Tillema et al., 2022 ), and several more offer some information about these individual actors’ roles “in passing” (for an overview, see Braumann et al., 2024 ).

As reported in this literature, it seems far from easy for individual actors to successfully engage in the integration of risk into management control. For instance, based on a case study of a large European bank, Tillema et al. ( 2022 ) report the challenges experienced by management accountants when assigned to progressive roles in risk management. In this case, the respective management accountants experienced considerable ambiguity in their new roles, and eventually moved back to their incumbent, less progressive roles. How the role of management accountants, controllers or other actors can be successfully enhanced with risk management duties, so that the integration of risk into management control can be driven by these actors, remains an open question. At the same time, this question seems very important, given that, in many organizations, risk management and management accounting and control increasingly converge.

Similar to Tillema et al. ( 2022 ), future research along these lines could be based on role theory (e.g., Katz & Kahn, 1978 ) and the long-standing and rich literature on controllers’ (changing) roles and identities (for a review of this literature, see Wolf et al., 2020 ). Likewise, future research might draw on approaches rooted in practice theory (e.g., Schatzki, 2002 ). Such approaches could be used to better understand the actual “set of doings and sayings linked by practical understandings” (Schatzki, 2002 , p. 87) of actors mandated with a closer integration of risk into management control. For a recent application of this approach to analyzing risk management, see Moschella et al. ( 2023 ).

4 Contributions in this special issue

Research on issues related to the steering of risk, such as suggested in Sect. 2 , have long been the focus of the annual conferences on risk governance at the University of Siegen, Germany. The associated special issues emanating from these conferences have, for instance, looked at how specific actors and their organizational roles shape risk governance (Hiebl et al., 2018 ), how sustainability reporting and risk governance interact (Bischof et al., 2022 ), how risk management and risk governance change over time (Hiebl, 2022 ), and how research on risk governance can evolve from theoretical framing to empirical testing (Hiebl, 2019 ). The 2022 edition of this conference featured the general theme “Courageous Risk Governance: Enabling Resilience, Autonomy, and New Thinking” and the associated special issue in the Journal of Management Control invited researchers to specifically look into how such forward-looking risk governance might interact with management accounting and control systems. After a scrutinous review process, five papers could be selected for inclusion in this special issue. They all contribute to a better understanding of how risk management and risk governance can facilitate resilience, autonomy, and new thinking, and shed light on how the integration of risk into management accounting and control systems can help in this endeavor.

The first paper by Eichholz et al. ( 2024 ) is based on a survey of German medium-sized and large firms that was conducted in 2021 and thus in the midst of the COVID-19 crisis. The paper looks at the effect of general risk management orientation on the planning function of budgeting in explaining the level of organizational resilience. Among other findings, Eichholz et al. ( 2024 ) report that a generally stronger risk management orientation is related to higher levels of adaptive capabilities in times of crisis, and in turn, competitive advantage. While Eichholz et al. ( 2024 ) also find a positive association between risk management orientation and a focus on planning, planning did not emerge as being significantly related to competitive advantage. The paper thereby delivers further insights on the interplay between risk management aspects and management control devices, and reinforces the idea that risk management can be an important factor in developing organizational resilience in times of crisis.

Also focused on the interplay between risk management and management control is the paper by Monazzam and Crawford ( 2024 ). This paper is based on a case study of a Swedish iron ore producer and illustrates how a firm moved from a rather traditional approach to risk management that was little integrated with other management control devices, to an ERM approach that was more closely aligned with other management controls systems. Monazzam and Crawford ( 2024 ) stress the pivotal role of individual actors, such as the firm’s CFO and the chief risk officer (CRO), that pushed for closer consideration of risk in strategic planning, supplier selection, and investment decisions, and thus a stronger integration of risk into the organizational control package. In turn, such integration facilitated the development of resilience resources and capabilities over time, highlighting the potential benefits of this integration.

Similarly, but for much smaller firms, the cross-sectional field study by Riepl et al.( 2024 ) examines how mid-sized family firms reacted to the COVID-19 crisis by developing their risk management approaches. Different from larger firms, the study shows that family firms often feature a mix of more formal and informal approaches to managing risk. Informal risk management may, for instance, occur via discussions in the controlling family over a meal, while more formal risk management was found to be closely related to other control practices, such as sales, liquidity, and investment planning (Riepl et al., 2024 ). According to the findings of Riepl et al. ( 2024 ), during the COVID-19 crises, both informal and formal approaches to risk management were strengthened, and functioned as complements in mastering the crisis and strengthening the studied family firms’ resilience. Given that the formal risk management practices studied by Riepl et al.( 2024 ) were closely related to or part of traditional management accounting and control instruments, these findings can be viewed as another indication that integrated risk and management control practices help to increase organizational resilience.

Likewise, the study by Bruno et al. ( 2024 ) examines the (dis-)integration of performance management and risk management. Methodologically, it is based on a case study of an Italian regional government and draws on a series of official documents and interviews. While Bruno et al. ( 2024 ) find that on paper– that is, in the official documents and written governmental plans– performance management and risk management were indeed integrated, this integration was rather weak at the operational level as reported in the interviews conducted by the authors. In addition, Bruno et al. ( 2024 ) highlight several factors that favored or hindered the integration of performance management and risk management. Importantly, the paper thus shows that government officials may be cognizant of the importance of integrating risk in management control but may experience operational challenges in implementing such integration.

Finally, and zooming in on this integration, Röser ( 2024 ) conceptually develops an approach that should better account for risk in the analysis of product life-cycles. Life-cycle costing is a well-established management control practice that aims to assess the total costs that can be expected over the entire life-cycle of a product or a system (Rödger et al., 2018 ). However, as argued by Röser ( 2024 ), the existing approaches to such costing have not adequately accounted for risks that may occur over the life-cycle. Röser ( 2024 ) therefore develops such an approach and uses a simulation to illustrate the integration of risk factors in product life-cycle calculations. He shows that, with this approach, decision-makers can benefit from more detailed risk information and, in turn, improved risk assessments could also benefit risk reporting and, more generally, an organization’s resilience, due to more detailed and more robust risk information.

Collectively, all papers in this special contribute to furthering our understanding of integrating risk in management control, and the potential effects of such integration on organizational outcomes such as resilience. Similar to other available studies on integrating risk management and management control (see Sect. 2 ), the papers in this special issue are mostly situated at the organizational level and shed some light on the relevance of individual actors. The call for more research on other levels of analysis as voiced in Sect. 2 therefore can be upheld.

5 Conclusions

This guest editorial aimed to introduce the Journal of Management Control special issue on “Courageous Risk Governance: Enabling Resilience, Autonomy, and New Thinking” and provide some food for thought on how research on the integration of risk into management control may progress in the future across multiple levels of analysis. After a rigorous peer-review process, five excellent papers could be selected for inclusion in this special issue. They all contribute to our collective understanding of the integration of risk into management control and shed light on various contexts in which such integration may occur. Additionally, all papers highlight that there is much to be gained from such integration, including the strengthening of organizational resilience. Besides the important suggestions for future research provided in the five individual papers in this issue, I hope that fellow researchers will find the suggestions on future research across multiple levels of analysis interesting.

I would like to express my sincere thanks to all authors who submitted their work for consideration in this special issue and to the anonymous reviewers for their excellent and constructive feedback to the authors. My special thanks go to the Managing Editors of the Journal of Management Control , Thomas Günther and Frank Verbeeten, for featuring this special issue in the journal, for outstanding guidance in managing the peer review process, and for taking on large parts of the work in this process.

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