Risk Management

Risk Management is the procedure of measuring, or assessing risk and developing methods to manage it. Methods include transferring the risk to an additional party, avoiding the risk, decreasing the negative impact of the risk, and accepting some or all of the consequences of a particular risk. Conventional risk management focuses on risks stemming from physical or legal causes.

Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments. Regardless of the type of risk management, all large corporations have risk management teams and small groups and corporations practice informal, if not formal, risk management.

An ideal risk management starts with establishing the context, inclusive of the identity and objectives of stakeholders, the basis upon which risks will be evaluated and defining a framework for the procedure, and agenda for identification and analysis. The next step in the process is to identify potential dangers--events that, when triggered, trigger problems.

Hence, risk identification can start with the source of problems, or with the issue itself. As soon as identified, they must then be assessed as to their potential severity of loss and to the probability of occurrence. After which, a decision on the mixture of methods to be used for every risk shall be made. Every risk management decision should be recorded and approved by the suitable level of management.

In as a lot as no initial risk management plans will be perfect practice, encounter, and actual loss results will necessitate modifications in the plan and contribute information to allow feasible various decisions to be made in dealing with the risks becoming faced. In the end, risk analysis results and management plans should be reviewed, evaluated, and updated periodically.

Risk management also faces issues in allocating resources. This is the idea of opportunity cost. Resources spent on risk management could have been spent on more lucrative activities. Once more, ideal risk management minimizes spending whilst maximizing the reduction of the negative effects of dangers.

If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not most likely to occur. Spending as well much time assessing and managing unlikely risks can divert resources that could be used more profitably. Unlikely events do occur but if the risk is unlikely sufficient to occur it may be much better to simply retain the risk and deal with the outcome if the loss does in reality happen.

Prioritizing as well highly the risk management processes could keep an organization from ever finishing a project or even obtaining began. This is especially accurate if other work is suspended until the risk management procedure is considered complete.

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