How to Prepare for Internal Risk Vs. External Risk

How to Prepare for Internal Risk Vs. External Risk

Written by Risk Management Team on November 8, 2022

No matter what kind of business you’re running, there’s one thing that all businesses have in common: risk. Risk is defined by where it originates, with internal risk coming from within an organization and external risk coming from forces outside their control. Regardless of where the risks originate, it’s essential to be aware of and manage them as you plan and execute your strategies and tactics. In this article, we’ll look at how to identify and prepare for risk regardless of where it comes from.

What is Risk?

In order to manage risk effectively, it’s essential that you first define what risk is and how it can affect your organization. When you’re able to clearly articulate the risks facing your business, you’ll be in a better position to identify the most critical risks, prioritize risk management efforts and set realistic goals for yourself. 

Additionally, defining internal and external risks helps ensure that you’re factoring all of your company’s threats into account when assessing its overall susceptibility to harm. This makes it easier for managers at every level of an organization to assess how well they’re doing at mitigating their organization’s exposure to certain types of harm—and whether or not it would benefit from making any changes.

Internal Risk vs. External Risk: What’s the Difference?

Risk management is a big topic, and it can seem overwhelming to think about the different aspects that determine the risks your company faces. One way to simplify this task is by breaking down risks into two categories: internal risk and external risk. Understanding these two types of risks can help you anticipate problems before they occur and ensure you know how best to handle them when they arise.

Internal Risk

Internal risk is a risk that exists within the organization. It can be thought of as any risk that can be identified and managed by that same organization. Internal risk can be very damaging to your company, so it’s important to understand how to identify and prepare for them. 

Internal risk will typically fall into one of four categories:

  • Human: This type of risk encompasses any situation in which employees fail to perform their jobs correctly due to lapses in judgment or skill set deficits. It’s also important to note that human-factor risk may not always be limited to individuals acting outside their job descriptions; an employee not being informed of company policies and procedures can also contribute to human-factor risks. 
  • Technological: This type refers predominantly to errors caused by faulty technology or outdated equipment. It can be something as simple as a server going offline or a glitch in your software. 
  • Physical: A physical risk is when something happens that causes damage or loss for your company’s assets, like buildings, equipment or employees. Physical risk can take many forms, including injuries to employees from improper training, lack of building maintenance, or theft. 

How to Prepare for Internal Risks

Internal risks must be managed, both because they’re usually a significant source of risk and because they’re more controllable. The best way to prepare for internal risks is by making sure that your overall risk management plan includes them as well as external ones. This means having dedicated policies and procedures in place for preventing, assessing, monitoring, communicating about, and managing internal risk—and it also means making sure everyone involved knows their role when handling them, so no one falls through the cracks.

External Risk

External risks are those that you have no control over. These are often referred to as “Black Swans” – events with low predictability and high impact that can cause major disruption for your organization. External risks are extremely dangerous because they can expose a company to things it cannot control or predict.

External risks can fall into several categories, but they most typically fall into one of three categories: 

  • Natural: Natural risks are threats related to natural disasters and other uncontrollable events, such as hurricanes, earthquakes, tornadoes, thunderstorms, and floods.
  • Political: A political risk is any unexpected change brought about by governmental action or inaction (e.g., legislation or trade policy).
  • Economic: Economic risks refer specifically to financial matters within a country rather than between countries; they’re usually caused by fluctuations in monetary value due either directly or indirectly through market forces like inflation or deflation.

How to Prepare for External Risks

While some external risks may seem unavoidable due to their nature (like hurricanes, earthquakes), others can be mitigated by adjusting internal policies or procedures around responding to them. Because of the unpredictable nature of external risks, it’s essential to have plans for how to respond to them if they occur. 

When it comes to planning for external risk, there are a few steps to take:

  • Identify the Risk: What are you trying to protect against?
  • Identify the Impact: How would a particular event affect your company’s performance?
  • Identify its Likelihood: How likely is it that this event will happen?
  • Identify the Consequences: What would be the consequences of an event occurring, and how severe would they be? 

Once you have identified external risks, you can more easily establish policies and procedures to address them if they occur.

Prepare for Risk With ComplianceBridge

Whether you’re facing an internal risk or external risk, risk assessment and risk audit management software is a vital part of running a business. Companies must be aware of the risks they face on a daily basis. Preparing for risk is not just about finding problems but also protecting against them. Thankfully, ComplianceBridge can help you do both. 

At ComplianceBridge, we help you prepare for any risk by providing easy-to-use tools that let you customize your risk assessments based on what matters most to your organization. With our software, you can weigh questions based on which priorities are most important to you, delegate questions to the appropriate stakeholders for accurate answers, track results in real-time so you know exactly where your organization stands at any given moment—and then audit those results against predetermined thresholds so you can be confident they’re accurate!

If you want peace of mind knowing that your organization is ready for whatever risk it encounters, contact ComplianceBridge to request a demo today!

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