What is Risk Management?
Life is in no certain terms certain. Simply put it means, Life is Uncertain. This is primarily because of the fact that we cannot anticipate or predict the future. For all, I know I may come across a
What is Risk Management?
Life is in no certain terms certain. Simply put it means, Life is Uncertain. This is primarily because of the fact that we cannot anticipate or predict the future. For all, I know I may come across a huge stash of gold while digging in the fields tomorrow. But what we as humans can possibly do is presume what would happen with the information and knowledge that we presently have.
For instance, if a thief stashed the gold in my field while evading the police, he can presume that when I work in my field there is a fair possibility that the gold gets unearthed. This is a valid presumption. Such presumptions and actions were taken on the basis of such presumptions lie at the basis of certain tasks involved in the management and especially planning. One such task of management that relies on this is Risk Management.
Risk Management is “the systematic application of management policies, procedures, and practices to the tasks of establishing the context, identifying, analyzing, assessing, treating, monitoring and communicating”. Risk management is essential for all businesses irrespective of their size, location, and nature.
Risk management in a business involves identifying, evaluating and prioritizing risk and thereby on the basis of such evaluation and prioritization using the coordinated economical application of the resources for the purpose of minimizing, monitoring and controlling the probability or impact of such risks.
It is the process of identifying potential risks in advance, analyzing them and taking precautionary steps to prevent them. Risk management is prominently done when a business makes a financial investment so as to identify the economic risks and their impacts and to tackle them.
According to Wikipedia,
“ Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.”
Five Steps of Risk Management Process
Risk management as a process involves the following broad steps:
1. Identify the Circumstances
It is essential to recognize the circumstances in which a risk arises before it can be clearly assessed and mitigated. Firstly, defining the relationship between your organization and the environment in which the risk exists, this helps in identifying the boundaries to which risk is limited. For instance in the strategic context, consider the environment within which the organization operates or in the organizational context, consider the objectives, competencies, employees, and goals.
2. Risk Identification
Risk identification is the process of identifying the specific risks associated with the identified hazards. For instance, the presence of inflammable substances is a hazard and it catching fire is a specific risk. The identification of risk does not imply a situation where the management has to factor in distant possibilities. For instance, management cannot identify a serial killer coming over to the factory at night and taking the flammable liquid to burn his victims as a risk to the hazard. They ca