Risk management is risk measurement or risk assessment and the development of strategies. Strategies include transferring risk to another party, avoiding risk, reducing the negative impact of the risk and accepting one or more consequences of a particular risk. Traditional risk management focuses on physical or legal risks.
Financial risk management, however, focuses on risks that can be handled with commercially manageable financial assets. Regardless of the type of risk management, every large corporation has a risk management team, small groups and companies are informal if they do not have formal risk management.
Ideal risk management begins with contextual design, including stakeholder identity and objectives, the basis for risk assessment, refinement of the process framework, and identification and analysis schedule. The next step of the process is to identify potential risks – events that can cause problems when triggering.
Here, risk identification can begin with the source of problems or the problem itself. Once identified, the potential severity of the loss and the likelihood of occurrence should be evaluated afterwards. Thereafter a decision is made on the combination of the methods used for each risk. All risk management decisions should be recorded and approved by the appropriate level of leadership.
If initial risk management plans are not perfect, experience and actual unprofitable results make it necessary to make changes in the plan and help make it possible to take different decisions to address any potential risks. Finally, the results of the risk analysis and management plans should be reviewed, evaluated and updated regularly.
Risk management also has difficulties in allocating resources. This is the idea of opportunity cost. Resources devoted to risk management could be devoted to more profitable activities. Again, ideal risk management minimizes spending while maximizing the negative impact of the risks.
If risks are incorrectly evaluated and prioritized, time can be eliminated in the risk of losses that are unlikely to occur. Too much time is spent on assessing and managing the illegal risks, using resources that can be more profitable to use. Unlikely events occur, but if the risk is insufficient to occur, it is better to simply keep the risk and manage the result if the loss actually occurs.
An over-high priority in risk management processes may be that your organization may or may not start a project at any time. This is especially true if other work is suspended until the risk management process is considered complete.
Risk management is simply systematic diagnosis, quantification of severity, and cost-effective methods to reduce the risk of the risk to the body. All risks should never be avoided or alleviated as a result of financial and practical restrictions. Therefore, each organization must adopt a certain level of public risk.
Copyright 2007 Ismael D. Tabije
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