Risk management is the process of identifying, assessing, and controlling risks arising from operational factors and making decisions that balance risk with offsetting benefits. It is a systematic approach used to identify, evaluate, and reduce or eliminate the possibility of an unfavorable deviation from an expected outcome. Nowadays, supply chain risk management is becoming a top priority in procurement, as companies lose millions because of supply disruption, cost volatility, non-compliance fines and incidents that cause damage to both: the organizational brand and reputation. All the following factors can cost your organization tens of millions in sales and hundreds of millions in brand damage. While reputation may only be important for name brands, cost volatility and supply disruption affect all manufacturers.
There are 2 main types of risk to include in your risk management plan:
External risks – those that are outside of your control
Internal risks – those that are within your control.