Risk management is an important concept that many employees, managers, and stakeholders refer to when they are concerned about the effects of a certain move on reaching key objectives.
Risk management is important because it gives the ability to figure out methods for which events can be managed, especially those events that may have an adverse impact on the financial or human capital of the organization.
Risk management should always be thought of as a process which is continuous. Not only does it allow one to assess risk, but it also gives us the ability to identify risk as well. By being able to assess and identify risk, it becomes easier for one to prevent it from occurring, or to quickly address adverse events if and when they do occur.
Risk management must be thought of as a very powerful strategic tool. It has been used in many industries and organizations for years, but in recent decades, it has become more prevalent due to international threats and the rapid growth of smaller organizations and companies.
One thing that all organizations must understand is that every one of them will face risks in one way or another. Whenever an organization or individual has objectives to meet, they will risk their resources when trying to reach these objectives. This is especially true when it comes to commercial organizations, and risk management is a tool which will allow these risks to be managed in an environment which is uncertain.
There are three primary goals that risk management offers to those who use it, and these three goals are
- To combine concerns which are related to the risk of the organization’s regular decisions, and the creation of the implementation process.
- To place a heavy emphasis on the allocation implications of resources.
- To develop an understanding of both the trade offs as well as the opportunity costs that come with any given decision.
To understand risk management, you must become familiar with the term "risk."
Risk is defined as any thing which poses a threat to an organization. Risk management is the process of dealing with these threats.
Understanding Risk and Risk Management
To deal with risk, risk management must plan for the risk, assess the risk, come up with options for handling risk, and analyze risks in order to determine the ways in which they may change. In addition to this, risk management must be capable of successfully documenting the complete risk management system.
To understand the usage of risk management, one thing that you must always keep in mind is that there are different types of risks. There are financial risks, process risks, intangible risks, time risks, human risks, legal risks, and physical risks. Financial risk is the loss of funding or key resources. Process risk involves risky business processes that could lead to project failure.
Intangible risks are often associated with any damage that is done to the reputation of the brand of the organization. Time risks are risks which often involve things connected to time, such as delays or opportunity costs which are missed.
A human risk involves any risks which are connected to humans, such as the loss of critical employees or knowledge. Legal losses include government regulations, regulations which have an adverse impact on the operations of the company. Physical risks involve the loss of physical resources, and can include things such as equipment, buildings, or land. Disasters, whether they are man made or natural, are the gravest threat to physical resources.
Of all the different types of risks discussed so far, it is the financial risks which have been of most concern to most companies for decades. Money makes the world go around, and if an organization loses its financial resources, many of the other risks will naturally follow as a result. Because of the poor management practices which have occurred over the last ten years, many Federal organizations are paying close attention to the management of risks.