What Is Commercial Risk Management?

Jessica Ellis
Jessica Ellis

Commercial risk management is the process of identifying risk factors and planning effective solutions or preventative measures that help reduce any form of vulnerability in business. This vital part of business plan allows a company to prepare for the most likely problems, create plans to handle specific crises, and put programs in place to help reduce the chance of loss, theft, or damage due to a breach of normal operations. Many business experts suggest that a comprehensive risk management plan helps companies mitigate daily risks as well as survive large-scale crises that may arise.

Preparing for natural disasters like tornadoes is part of commerical risk management.
Preparing for natural disasters like tornadoes is part of commerical risk management.

Businesses that offer loans, lines of credits, or long-term accounts to customers must have commercial risk management plans that prepare for occasional losses. Loans and any type of payment made after delivery of goods or services may become uncollectible if clients or customers declare bankruptcy, go out of business, or turn out to be fraudsters or con artists. Banks and other commercial enterprises that offer these services usually compensate for the inevitable occasional loss by creating a risk management system that ensures that a loss does not threaten the overall profit of the company. This may be done by creating loss management accounts funded by account fees, or by taking out risk insurance that can recover uncollectible funds.

Employee behavior is an important area for commercial risk management. White collar crime, such as embezzlement, is a serious issue within many businesses. Creating a consistent review process that makes any unusual activity or accounting immediately apparent is an important part of cutting down on the opportunity for internal crime. Additionally, programs that try to increase employee loyalty are also an important part of risk management for internal crime.

Security is an important part of any commercial risk management plan. Modern companies not only have to deal with ensuring the safety of merchandise and trade secrets, but must also take precautions to ensure the security of customer data, particularly that stored in computer databases. The creation of virus and hacker resistant websites and databases has become nearly as important to the security of a company as surveillance cameras and guards.

Contingency or disaster preparation may also be a part of commercial risk management. Whether a disaster is a massive recall that damages company profits and public relations, or a tornado that destroys the main office of the business, proper risk management strategies can help create and enforce contingency plans that make crises survivable. Risk management for disasters includes analysis of the most likely serious issues to occur and creates training programs that will teach employees exactly what to do in case of a given circumstance. In addition, disaster risk management can involve measures like redundant files and automated systems that allow the company to keep functioning regardless of the circumstances.

Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a wiseGEEK writer.

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