Each business carries a risk element. Therefore, managing risks is a critical process for many organizations. Depending on the business, steps can be taken to reduce the frequency and intensity of the risk. Risk management is a process or group that is involved in an organization that takes control measures to reduce the risk. This activity involves the process of measuring and developing risk management strategies. The strategies employed include transferring risk to another party, avoiding risk, reducing the negative impact of the risk and accepting one or more consequences of certain risks.
There are two types of risk management. Traditional risk management focuses on physical and legal causes such as natural disasters, accidents, deaths or perils. Financial risk management deals with the risks that can be handled with traded financial instruments. Large corporations use risk management groups, while smaller companies employ informal, non-formal, risk management techniques that fall under the responsibility of operational managers. Risk managers recognize and review the losses of their organizations, including property, liability, staff and net income. This promotes growth through profit, continuous operation and stable income.
The task of risk management is to organize and carry out a plan that controls or reduces the risks the company is exposed to. This plan consists of five steps. The first step is to identify potential risks. The way in which risks can be identified can depend on organizational culture, industry practice, and compliance. After recognizing the risks, the next step is to assess the potential severity of loss and the likelihood of occurrence. The third step is to handle the problem. This may include the transfer, avoidance, reduction or retention of potential risk. The next is to select the appropriate way of implementing the plan. Prior to implementation, review and evaluation of the plan is necessary.
Initial risk management plans are never perfect. Practice, experience and actual results require changes in the plan. Therefore, the plan must be flexible in decision-making. Risk management is an art, experience and situational experience among leaders.
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