Realities of Risk Management308612
Through the use of risk management, managers hope to identify, analyze, control, steer clear of, minimize, or get rid of the risks that can harm their company. There are many errors that are made in risk management and it is essential for companies to be aware the them. One error is the use of poor governance. Having effective governance leads to openness and commitment which allows risk management to function effectively. If a company lacks leadership, it will undermine the risk management capabilities. It is important to have discipline when involved in risk taking, particularly throughout times of fast growth and favorable markets. There must be limits, checks and balances, and monitoring involved.
An additional miscalculation that managers have is following the "herd mentality". When a company has a large amount of activities, particularly in the locations of mortgage brokers, lenders, mortgage insurers, investment bankers, and institutional investors, it is easier for a manager to ignore the dangers. When one manager sees an additional manager disregarding risks, they might have the tendency to adhere to suit. In order to avoid this, everyone must be made conscious of the company's financial condition.
Misunderstanding the "if you cannot measure it, you cannot handle it" mindset can be a blunder in the waiting. Many managers use this mindset as an excuse so that they do not have to totally understand or acknowledge the dangers involved. An additional faux pas managers make is accepting a lack of transparency in high-risk areas. Many managers make decisions with a lack of information. It is important for managers to see the entire image before they make decisions. Executive management should produce risk awareness all through each aspect of the business.
A massive oversight in some companies is when they do not integrate risk management with strategy setting and overall performance management. When forming a strategy, it is important to incorporate all the dangers involved. If risks are left out, managers will be left with unrealistic strategic objectives. Thus, leading to a technique that can deteriorate the company's competitive position, trigger problems in the altering business environment, and trigger the business to lose worth.
An additional oversight that can have a drastic impact on managing risks is not involving the board in a timely manner. If a issue arises, the board should be notified as soon as feasible and not following the reality. It is important to familiarize the board with the organizations risk profile.
There are many dangers involved when operating a business. Managers need to behave in a manner that will benefit their company and they need to comprehend the dangers involved in the business and be in a position to method them in a realistic manner.
