Managing risk is essential in every organization to accomplish its key objectives effectively. Risk management not only requires a reliable process to capture risks, but also needs a mechanism to document and administer the organization's response.
An appropriate risk management tool always helps the risk managers to identify, assess, and prioritize the risks which can be prevented. Here, we will discuss about spreadsheets - commonly used risk management tools and their true costs. We will also know about the best tool to replace spreadsheets for effective risk management.
Spreadsheets are commonly used management tools because they are • Convenient to use: Many people believe that spreadsheets are convenient to collect, code, sort and analyze data. Yes, they are better than paper based management systems, but they are risky.
• Flexible to enter data: With some basic encoding, spreadsheets offer flexible arrangements of rows and columns to enter data. They allow the user to configure and enter information in a way that suits his unique needs. But risk management involves analysis of various factors and a spreadsheet may not be helpful.
• Low cost or free option: Spreadsheets are either available as freeware or at low-cost. That is why organizations use them extensively. But they fail to understand the fact that the true cost of a tool should be defined by the operational costs that affect the business on long-run; not by the initial cost of the tool.
Are they really beneficial? Many business owners and risk managers today are using spreadsheets as risk management tools unaware of the risks involved (however some are aware). Here are the risks involved:
• Inability to process huge amounts of data: Although spreadsheets are a good solution for small volumes of data, the processing and calculation will become complicated with the continual growth.
• Time consuming: Risk management requires collecting great deal of information, which often results in huge number of spreadsheets interlinked to each other. A little change to the data structure becomes a great task. This makes risk managers spend countless hours validating data, double checking formulas, and updating values, which is as a time-consuming process.
• Complex to find mistakes: It is quite difficult to find mistakes in a spreadsheet with lot of data. It is often time consuming process to find where exactly the mistakes have occurred.
• Limits the depth of risk analysis: With each change made to a spreadsheet, links between the information are lost making it difficult to analyze relationships over time. Without these links, it becomes tough to link risks and their controls. Also they offer limited access to past and current data making it difficult to compare data overtime.
• Intensive labor: The process of risk management involves continuous updating of data and it increases day by day. Updating data and using spreadsheets effectively requires lot of time and effort. So intensive labor with good knowledge of using the shortcuts and formulas is compulsory.
• Lacks security: A user can accidentally or intentionally delete vast amounts of critical information. Spreadsheets are highly vulnerable to virus attacks, hard disk crashes, and other unexpected disasters.
Underlying costs of using spreadsheets In general, people think that spreadsheets are free, but they never calculate the underlying costs that can impact the business. Following are the true costs of using them.
• Labor costs: As discussed earlier, it takes lot of effort to create, maintain, organize, and report using spreadsheets. However, the fact that these things require labor, which in turn results in huge costs to the company, is often ignored.
• Opportunity costs: Spreadsheets consume lot of your time and effort, which you can productively use for adding value to the organization. Many business owners, in fact, lose many opportunities hanging around with spreadsheets.
• Risk and non-compliance costs: Spreadsheets lack in company wide visibility, accountability, security and control which results in increased costs in terms of failed audits, unforeseen events, increased insurance costs and so on.
• Scalability costs: A small company can manage and use one spreadsheet to track all records. But as the business grows, the effort of maintaining and consolidating these records increases exponentially. At one point this process fails and negatively impacts the business.
• Human error costs: Spreadsheets are vulnerable to manipulation, which can dramatically impact the company. Moreover, with the increasing chances of human errors, it is difficult to consider that the data is valid and reliable. These human errors can cost a lot to the company.
Effective tool to replace spreadsheet - Risk Management Software After seeing all the risks and costs involved with spreadsheets, one would certainly ask for a better tool to manage risks and here is the solution - the Risk Management Software. It can effectively replace spreadsheets in the risk management process. Following are the benefits of using risk management software.
• Effective control over GRC processes: Risk management software helps in the effective control over the GRC (governance, risk management, and compliance) processes with proper documentation and work flow. They also help managers in risk assessment and analysis, visualization and reporting.
• Data security: User can limit the availability of data by creating passwords. He can also give full access to all the data to a particular group of people within the organization. This feature eliminates the risk of manipulation of data.
• Real time recording: Recording and updating information regarding risks is easy using this software. You need not spend hours to update the data.
• Reliable audits: This software offers full protection to all the data in the system with fully automated backups. This allows auditors to extract robust and reliable audit trails without unnecessary effort and thus it helps them in identification of risks, and creation of risk management strategies.
• Automated risk reporting: It provides the user with clear information on their objectives and risks associated. It also informs about the required actions and scheduled dates to implement them to prevent risks.
• Clear and consistent reports: A unique feature of this software is that it provides clear and consistent reports making it easy for managers to view the risks in real-time.
How to choose effective risk management software With growing demand of the risk management software, many companies offering this software evolved in the market. Therefore it is important to choose the effective one to reap the maximum benefits. Following are some tips to choose a good one.
• Reputed vendor: A well established and experienced vendor definitely offers standard products as he fully understands risk management standards.
• Maximum features: Before buying the product, make sure that it has all features to help you in managing the risks properly.
• Customer service and tech support: As this product is new for the organization, it is important to choose a company that offers 24/7 tech support and timely customer service. Moreover, as risk environment demands a constant change of compliance, make sure that the vendor is offering regular product updates and maintenance releases.
An upgrade in the existing technology never says that the existing product is of no use, instead offers the user with more useful features. Upgrading to latest tools like risk management software enhances the organization's capabilities in managing risk.
3 Mistakes to Avoid When Contacting Insurance Leads How A Bank Took Over The Relationship From My Financial Advisor
