Risk Management Explained
The dynamic environment of the modern world, business is exposed to risks of all kinds. While managing a business, one has to take a holistic view of all the aspects, and it is important to know all the risks that you may be facing.
Risk-management is the process of identifying these risks and planning how to deal with them. The first step in risk-management is to identify, and define the risks you think will be faced in the future. The next step is to analyse the impact of those risks on your business, and prioritise them accordingly. Those risks, which have a larger impact, should be dealt with first. Finally, risk-management includes planning how to counter those risks, so that they do not adversely affect your business, and then taking those necessary steps.
There are many ways to manage loss. The first is through risk avoidance. This means that you avoid that activity, or that process that exposes you to the particular risk. Although this eliminates your exposure to the risk, it can also make you miss certain opportunities to make a profit. Thus, it is not a solution for all kinds of risks.
Another way to manage risk is through risk reduction. Risk reduction means following those steps, which can reduce the impact of loss, or help control it. One way to reduce loss is to outsource one, or more of your business functions to a third party who is expert at handling them. For example, many companies outsource their information technology systems to other firms, so that they do not have to deal with the risks associated with them.
Loss retention is also one of the processes of risk-management. It sometimes happens that the risks involved are unavoidable, and essential for the business. Risks are part of a business, and it is not possible to eliminate risks from your environment. Thus, some risks must be retained, especially if their impact is not that large.
Lastly, loss transfer is one of the most common methods of risk-management. This involves transferring your risk to a third party through insurance. Many types of risks can be insured against such as vehicle accidents, theft and fire hazards. In this way, if you are exposed to a certain risk, your insurer will pay for it.
There are many areas of risk-management. One of the most common is financial risk-management. Financial risk is one that is faced by every kind of business, and is one that can play a major role in the success of your business. Thus, it is important to have proper financial risk-management systems in place. A more holistic approach is Enterprise Risk-Management, which takes into accounts the risks associated with all departments, and functions of a business.
Before deciding on the risk management method, it is important to analyse the risk from all points of view. However, it is essential to realise that loss are a part of business, and some exposure to risks is necessary.