Realities of Risk Management85201
Through the use of risk management, managers hope to determine, analyze, control, steer clear of, reduce, or eliminate the dangers that can harm their company. There are many mistakes that are made in risk management and it is important for companies to be conscious the them. One error is the use of poor governance. Having effective governance leads to openness and commitment which enables risk management to function successfully. If a company lacks leadership, it will undermine the risk management capabilities. It is essential to have discipline when involved in risk taking, especially during occasions of fast growth and favorable markets. There must be limits, checks and balances, and monitoring involved.
Another 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 may have the tendency to follow suit. In order to steer clear of this, everyone should 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 comprehend or acknowledge the risks involved. An additional faux pas managers make is accepting a lack of transparency in high-risk locations. Many managers make decisions with a lack of information. It is essential for managers to see the entire image before they make decisions. Executive management must produce risk awareness throughout each aspect of the business.
A huge oversight in some companies is when they do not integrate risk management with strategy setting and performance management. When forming a strategy, it is essential to incorporate all the dangers involved. If dangers are left out, managers will be left with unrealistic strategic objectives. Therefore, leading to a strategy that can deteriorate the company's competitive position, trigger issues in the changing business atmosphere, and cause the business to shed value.
Another oversight that can have a drastic effect on managing risks is not involving the board in a timely manner. If a problem arises, the board should be notified as soon as feasible and not following the fact. It is essential 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 require to understand the risks involved in the business and be able to approach them in a realistic manner.
