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Every entrepreneur and business person understands the basic law of business. Nothing can be gained unless risks are taken, and risks cannot be eliminated entirely. However, risk can be minimized or managed through best practices. Therefore, disclosure of the operational risks taken by the company to the public every quarter of the year has become a customary best practice. This is why certain risk management techniques have become a standard requirement.

There are many risk management techniques and they vary according to the type of business. Nonetheless there are five basic risk management techniques recommended and generally applicable to all types of businesses. These include:

Analyzing Features of Effective Management:

This involves identifying the tangible and intangible assets. The tangible assets, such as capital can be at risk, while intangible assets such as recognition and name of the company can be damaged. Once the risks have been identified, the extent of the damage can be assessed by determining the probability and then multiplying it with the cost of the event.

Considering Priority Risks:

Identifying and assessing the risks is not enough. Considering the priorities of these is crucial. To ensure effective risk management, there have to risk management plans to handle the risks based on the priorities of the business. The factors involved in the risks identified must be considered. Additionally, there is the need for accuracy of the assessments is very important.

Type of Business:

The type of business governs the type of risk management technique. There is a variety of types of business and there are as many risk management techniques. Whatever the type the business may be, there are four basic efforts required. These are:

• Avoidance: This requires one to stay away from implicative activities. However, this only minimized the risk, it does not eliminating it.
• Risk Reduction: The business owner must take measures to reduce the risks identified.
• Risk Transfer: When there are options with a third party such as in the case of purchasing insurance policies.
• Risk Retention: When the probability of risks occurring is very less, or the costs of mitigating the risk, this is the only way out. Additionally, in some businesses transferring the risk may be prohibitive, and the business has to consider risk retention.

Signification of the Capital:

Retaining the capital is more important than making profit all the time. That means if proper risk management is implemented as a best practice massive capital losses can be prevented. Therefore, the government is also persistently involved in risk management. As a result business agencies are dedicated to creating emergency plans.

Potential Threats:

As global financial and economic instability has increased in recent days, risk for most businesses has mounted. This has made government risk managers less risk tolerant and they choose to ensure total security by eliminating every likely risk. Therefore liberties become liabilities and if best practices are not implemented they can become threats. This leaves corporate risk managers with little choice and they have to ensure compliance.

Further reading: Corporate Governance | Audit | Performance Improvement