Risk management is a practice that deals with processes, methods, and tools for managing risks in a project/venture. It is the identification, assessment, and prioritization of risks followed by coordinated and cost-effective application of resources to lessen, supervise, and control the probability and/or impact of things going out of control.
Risk may be expected to come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes/disasters and deliberate attacks from a competitor. Managing risks provides a disciplined environment for proactive decision-making to continuously assess what may go awry within an organization and with its products/brand. Effective risk management can pinpoint which risks are important to settle at once and which ones can be dealt with at a later time. The implementation of efficient strategies can also mitigate risks.
For the most part, these strategies consist of the following elements, performed, more or less, in the following order.
The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.
The principles of risk management are a set of practices utilized by business to manage its exposure to risk, reach its objectives and goals, and to guide its conduct to meet expectations and concerns of the public interest, labor relations, human safety, the environment, and the laws governing business practices.
The Principles of Risk Management are:
Risk assessment – identifying, quantifying and prioritizing exposure to risk. When exposure to risk has been identified, quantified and prioritized, treatments for the organization’s exposure to risk can be devised.
Risk control – manages exposure to risk on a continuous basis. Part of risk control is an ongoing evaluation of risk exposure that assures the business that its plans are correct for the most current risk climate. It also involves risk mitigation, contingency planning and careful managerial supervision of the combined risk management efforts. This way, adjustments can be made to continually improve the efficiency of the business over time and guard against untreated exposure.
In this section we will discuss: