Risk Management - What You Should Know About it

Risk Management: What You Should Know About it

“Managing risk is very different from managing strategy. Risk management focuses on negative threats and failures rather than opportunities and successes,”
Robert S. Kaplan

Hello, you are here to learn about risk and risk management. In this article, we will try to clarify the concept of risk, types of risks, and risk management processes and approaches with context to businesses and personal finance.

What is Risk?

Risk is the unexpected loss to anyone or something unfavourable likely to occur due to a specific situation. It measures the probability of how much the actual results deviate from the expected ones.

Types of Risks:

In the broader sense, we can classify risks into two main categories, which are under

Systematic Risks:

Systematic risks come from external factors not in your control, but you can manage or reduce the intensity of risk. It is the overall impact of an event on a specific market.

It is the uncertainty of the whole market. The main causes of this type of risk are political uncertainty prevailing in the country, natural catastrophes, and a major economic downturn.

Unsystematic Risk:

Unsystematic risk is a type of risk that is specific to anyone or anything. You can avoid, control, and manage your unsystematic risk. These types of risks arise within you or your organization. Your actions are the main cause of this risk, and only you can control, avoid and eliminate the risk.
There are many other risks to consider, some of which are as follows.

Business risk: Risk involved in your business.
Financial risk: The risk associated with your capital structure.
Operational risk: The risk associated with the operations of a company.
Competition risk: This is a risk from your competitors.
Management risk: Risk with management decisions.
Legal risk: Uncertainty about laws.

What is Risk Management?

Risk management is a continuous process to identify, analyze, evaluate, track, and reduce risks in any business organization. Every individual or organization, small or big in the practice, deals with risks. Individuals and small businesses do it informally, while large organisations do it formally.

No one can avoid all risks; not all risks will necessarily have a negative outcome. Companies must assess an event’s benefit/risk ratio and define the acceptable level of risk. This assessment can then be used to make decisions.

5 Important Steps to Manage Risks

1 – Identification of Risk:

Identifying and describing the potential risk is the first step in risk management. These can be financial, operational, project, business, and market risks. Risk identification is a critical step in risk management.

Identifying and classifying the potential risk will be easy for you to handle.
Identified risks should be recorded in a risk register or document in another format.

2 – Risk Analysis and Assessment

“Opportunity and risk come in pairs”
Bangambiki Habyarimana

It is the second most important step to managing your risk. Once you identified your risk, then it needs to be analyzed critically. It is not necessarily that every risk that comes to you has only a negative impact; you can see opportunities in it.

You need to find out and avail the one. You should determine the severity of the risk and the potential impact of the risk on you and your organization. Just do a deep analysis of where and what will be affected and how much. You can write down your analysis report and monitor it to manage it.

3 – Find Alternative Solutions:

Determine the importance of risk through internal audits and risk analysis. You will also have to define the acceptable level of risk and the elements to be treated as a priority. It is the systematic process of accessing the risk by analyzing and evaluating risk.

Identify the potential ways to treat the risk and adopt the approach to treat the risk which will best suit you.

4 – Implement the Best Solution:

Once you have enlisted all alternative solutions, analyze them and implement the best one to achieve your desired results. Make a proper strategy to implement the solution and ensure you have all the resources.

5 – Monitoring the Results:

Risk management is a continuous process, unlike a one-time project with an end time. So, when you have gone through all the risk management processes, your final step will be monitoring your outcomes.

You will see the results of your implemented strategy, analyze your results and see that you have come up with the desired results; if not, then see why and what changes are required.

Approaches to Risk Management:

Risk Avoidance: Risk avoidance is about stopping and avoiding any activity that presents a risk.
Risk Reduction: Risk reduction involves actions that reduce the likelihood of a risk occurring or the magnitude of its impact
Risk Sharing: Risk sharing occurs when one company transfers the risk to another or shares it with another; for example, it shares a risk when it outsources manufacturing or customer service to a third party.
Risk Retention: Risk retention occurs when the risks have been assessed, and the business agrees to take them. No measures are taken to limit the risks, but setting up an emergency plan is possible.

Importance of Risk Management

“The biggest risk is not taking any risk. In a world that’s changing quickly, the only strategy that is guaranteed to fail is not taking risks”
Mark Zuckerberg

Everyone, individuals or businesses, has risks in their life, and one should not be afraid of risks.
Risk management is a skill that one has to learn to succeed in life. As there is no pain and gain, you can’t receive any big reward if you can’t take risks. Just take the risk, understand, and manage it. This is the art of exploiting risk.

Conclusion

Everyone, individuals or businesses, has risks in life, and one should not be afraid of risks.
Risk management is a skill that one has to learn to succeed in life. As no pain or gain, if you can’t take risks, you can’t receive any big reward. Just take the risk, understand, and manage it. This is the art of exploiting risk.

Frequently Asked Questions

What is a key principle of risk management programs?

Risk management is the process of identifying risks and planning and implementing strategies to control or reduce them.

What are the key components of risk management?

There are three main components to risk management: Control is the act of avoiding risk or mitigating the effects of risk. Mitigation involves taking actions to lessen the negative impact of risk. The response deals with a situation when it has occurred or is about to occur.

What are the key concepts of risk management in healthcare?

Healthcare institutions must clearly understand the principles and practices of risk management, including risk assessment, control, and communication. Risk management should also focus on the patient’s safety, the quality of care, the protection of patients’ rights, and compliance with legal and regulatory requirements.

What are the key elements of risk management?

The key elements of risk management are to have an assessment plan and then execute it. The assessment plan should involve identifying the risks, determining the potential impacts, and establishing a plan to deal with them.

What is a key control in risk management?

A key control in risk management is monitoring. Monitoring is done regularly to ensure the business is meeting established safety standards.

Are key behaviours exhibited that support our risk management culture?

Our behaviour is consistent with our risk management culture. For example, we have created policies and procedures that clearly define our expectations of employees and our approach to handling incidents. We provide training on all relevant topics to help employees understand their responsibilities. We monitor performance and provide feedback when an employee fails to meet expectations.