Risk Management - Overview, Importance and Processes

What Is Risk Management?
Risk management encompasses the identification, analysis, and response to risk factors that form part of the life of a business.
Effective risk management means attempting to control, as much as possible, future outcomes by acting proactively rather than
reactively. Therefore, effective risk management offers the potential to reduce both the possibility of a risk occurring and its
potential impact.

Risk Management
Risks Management Structures

Risk management structures are tailored to do more than just point out existing risks. A good risk management structure should
also calculate the uncertainties and predict their influence on a business. Consequently, the result is a choice between accepting
risks or rejecting them. Acceptance or rejection of risks is dependent on the tolerance levels that a business has already defined for
itself.
If a business sets up risk management as a disciplined and continuous process for the purpose of identifying and resolving risks,
then the risk management structures can be used to support other risk mitigation systems. They include planning, organization,
cost control, and budgeting. In such a case, the business will not usually experience many surprises, because the focus is on
proactive risk management.
Response to Risks
Response to risks usually takes one of the following forms:
Avoidance: A business strives to eliminate a particular risk by getting rid of its cause.
Mitigation: Decreasing the projected financial value associated with a risk by lowering the possibility of the occurrence of the
risk.
Acceptance: In some cases, a business may be forced to accept a risk. This option is possible if a business entity develops
contingencies to mitigate the impact of the risk, should it occur.
When creating contingencies, a business needs to engage in a problem-solving approach. The result is a well-detailed plan that can
be executed as soon as the need arises. Such a plan will enable a business organization to handle barriers or blockage to its
success, because it can deal with risks as soon as they arise.
Importance of Risk Management

Risks management is an important process because it empowers a business with the necessary tools so that it can adequately
identify and deal with potential risks. Once a risk’s been identified, it is then easy to mitigate it. In addition, risk management
provides a business with a basis upon which it can undertake sound decision-making.
For a business, assessment and management of risks is the best way to prepare for eventualities that may come in the way of
progress and growth. When a business evaluates its plan for handling potential threats and then develops structures to address
them, it improves its odds of becoming a successful entity.
In addition, progressive risk management ensures risks of a high priority are dealt with as aggressively as possible. Moreover, the
management will have the necessary information that they can use to make informed decisions and ensure that the business
remains profitable.
Risk Analysis Process

Risks analysis is a qualitative problem-solving approach that uses various tools of assessment to work out and rank risks for the
purpose of assessing and resolving them. Here is the risk analysis process:
1. Identify existing risks
Risk identification mainly involves brainstorming. A business gathers its employees together so that they can review all the various
sources of risk. The next step is to arrange all the identified risks in order of priority. Because it is not possible to mitigate all
existing risks, prioritization ensures that those risks that can affect a business significantly are dealt with more urgently.
2. Assess the risks
In many cases, problem resolution involves identifying the problem and then finding an appropriate solution. However, prior to
figuring out how best to handle risks, a business should locate the cause of the risks by asking the question, “What caused such a
risk and how could it influence the business?”
3. Develop an appropriate response
Once a business entity is set on assessing likely remedies to mitigate identified risks and prevent their recurrence, it needs to ask
the following questions: What measures can be taken to prevent the identified risk from recurring? In addition, what is the best
thing to do if it does recur?
4. Develop preventive mechanisms for identified risks
Here, the ideas that were found to be useful in mitigating risks are developed into a number of tasks and then into contingency
plans that can be deployed in the future. If risks occur, the plans can be put to action.
Summary
Our business ventures encounter many risks that can affect their survival and growth. As a result, it is important to understand the
basic principles of risk management and how it can be used to help mitigate the effects of risks on business entities.

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Risk Management - Overview, Importance and Processes

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What Is Risk Management?

Risks Management Structures

Importance of Risk Management

Risk Analysis Process

1. Identify existing risks

2. Assess the risks

3. Develop an appropriate response

4. Develop preventive mechanisms for identiﬁed risks

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