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Risk management - an introduction
Risk is an inherent
factor in all activities and is a
reality of life. With respect to Risk
Management in business, the concern lies
in its negative impact. It also deals
with how the effect of risk can be
minimized or eliminated. Businesses face
risk from more than one quarter. Risk
can basically be classified into two
classes or categories. The first in be
design and the other risk is by chance.
How to deal with risk –
Whichever the class or category of risk,
the foremost step that needs to be taken
by companies in order to deal with risk
is to have a mechanism in place that can
forestall and foresee risk. After this,
the next step is to take measures in
order to minimise risk that cannot be
eliminated altogether. The 3rd
step is to either divert or transfer the
risk. The 4th step is to go
with the flow by accepting the remainder
portion of risk, that is, to tolerate
the risk and the pain that comes with it
and then get back into business.
Following are a sequence
of measures that could be taken to face
risk and get the most suitable results.
However, one must remember that a
single, perfect way to deal with risk
does not exist. It is mainly dependent
on the type of risk, the surrounding
circumstances as well as available
resources at that moment.
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Risk identification – All the activities
have certain amount of risk associated
with them. Hence, each activity needs to
be broken into individual components
after which the risks need to be
identified for individual units as well
as the whole entity.
Risk identification plays
a vital role in managing risk. Efficient
and thorough ground work always gives
better end results. All the business
activities need to be studied in and
out. The associated risks and potential
problems need to be mapped.
-
Risk elimination – After risk
identification, the next thing to be
done is to eliminate them. However, all
the identified risk cannot be eliminated
and not all have to be endured. Risks
need to be eliminated to a certain
viable and possible extent. Risks should
be eliminated by combining a few
strategies, based on the context, and
the extent and nature of the risk faced.
-
Risk mitigation – All those risks which
can’t be eliminated need to be reduced.
The quantity of loss a business faces
due to the occurrence of a risk is
mainly dependent on the severity of this
risk. Reduction of the severity of this
risk will lead to the reduction of the
potential funds lost.
-
Risk acceptance – When the risk can
neither be eliminated nor reduced, it is
best to accept it and channelize it in
such a way that its impact becomes
bearable.
-
Risk transfer or diversion – One can
imaginatively transfer or divert the
risk in some other entity n order to
deal with risk.
Above all, it is
necessary for an organisation to be
prepared so that risk can be dealt with
whenever it occurs. |
