Managing risk is one of the most important aspects of business management. The risk is generally defined as the possibility of the occurrence of a loss or misfortune. Managing the consequences of the events related with business also falls under the concept of managing risk of a business.
The risk management practice involves the use of various tools and methods to manage the risks associated with the business. The main objective of the managing risk is to emphasize on what decision can go wrong affecting the business adversely.
The evaluation of risks and designing strategies in order to deal with the various risks are also the objectives of risk management. All businesses need to determine the risks and should be well prepared to deal with the risks. The various strategies to deal with the risks should be cost effective.
Before managing the risks, a proper study should be done so as to identify the risks associated with the business.
The various types of risks affecting the business are:
A business can face the strategic risk if a new competitor arrives in the market. The example of compliance risk for a business is the new safety or health legislation introduction. The financial risk faced by the business may arise if the interest rates for business loans increase or if the customer fails to pay the due amount. Any example of breakdown or equipment theft may cause operational risk to a business. After identifying the type of risk, the business needs to address the risk strategically.
The step-by-step process of managing risk includes:
Determining the risks that are affecting the business methodically
Evaluating the probability of occurrence of an event
Identifying the ways of responding the risk events
Deciding strategies in order to deal with the various consequences
Supervising the strength of the approaches of risk management measures
The business entities can enjoy the benefit of the measures of managing risks in a number of ways. The risk management helps the business in the allocation of resources and capital in the most effective manner. It also helps in business planning, decision-making and prioritizing various projects. The risk management helps the firm to foresee what measures may go wrong for the business while also helping it to prevent a serious financial loss or disaster.
Last Updated on : 27th June 2013