The risk is certainly part of our daily lives. In order to grow and develop, as an individual and a society, taking risks are needed. Risk should not be avoided, instead, it needs to be managed. From energy to infrastructure, supply chains to airport security, hospitals to housing, effectively managed risks help societies achieve various goals and development. In the fast paced world, the risks that need be managed can evolve quickly. In this sense, making sure that managing risks so that threats can be minimized and maximise the potential.
In term of definition, risk management is the continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss. Loss may result from the following: financial risks such as cost of claims and liability judgments, operational risks such as labor strikes, perimeter risks including weather or political change and strategic risks including management changes or loss of reputation
All risk management plans follow the same steps that combine to make up the overall risk management process. The steps are as follows.
- Risk identification. This step requires the company identifies and defines potential risks that may negatively influence a specific company process or project.
- Risk analysis. Once specific types of risk are recognized, the company then determines the odds of it occurring, as well as its significances. The goal of the analysis is to further apprehend each specific instance of risk, and how it could affect the company’s projects and objectives.
- Risk assessment and evaluation. The risk is then further evaluated after determining the risk’s overall probability of occurrence combined with its overall consequence. The company can then make decisions on whether the risk is acceptable and whether the company is willing to take it.
- Risk mitigation. During this step, companies assess their highest-ranked risks and develop a plan to alleviate them using specific risk controls. These plans include risk mitigation processes, risk prevention tactics and contingency plans in the event the risk comes to fruition.
- Risk monitoring. Part of the mitigation plan includes following up on both the risks and the overall plan to constantly monitor and track new and existing risks. The whole risk management process should also be reviewed and updated accordingly.
After the company’s specific risks are identified and the risk management process has been implemented, there are several different strategies companies can take in regard to different types of risk:
- Risk avoidance. While the complete removal of all risk is hardly possible, a risk avoidance strategy is designed to deflect as many threats as possible in order to avoid the costly and disruptive consequences of a destructive event.
- Risk reduction. Companies are occasionally able to reduce the amount of effect certain risks can have on company processes. This is attained by adjusting certain aspects of an overall project plan or company process, or by reducing its scope.
- Risk sharing. From time to time, the consequences of a risk is shared, or distributed among numerous of the project’s participants or business departments. The risk could also be shared with a third party, such as a business partner or vendor.
- Risk retaining. Every now and then, companies decide a risk is worth it from a business standpoint, and choose to retain the risk and deal with any potential fallout. Companies will often retain a particular level of risk a project’s anticipated profit is superior to the costs of its potential risk.