Risk management is the process of making and carrying out decisions that will minimize the adverse effects of risk on an organization.
The adverse effects of risk can be objective or quantifiable like insurance premiums and claims costs, or subjective and difficult to quantify such as damage to reputation or decreased productivity.
By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business will protect itself from uncertainty, reduce costs, and increase the likelihood of business continuity and success.
Wherever there is an opportunity for profit or loss, the risk factor exists. Regarding losses, risks are generally regarded as exposures to loss (or exposures).
Often risk is broken down into two general terms:
- Speculative Risk — Risks where the possible outcomes are either a loss, profit, or status quo. It includes things like stock market investments and business decisions such as new product lines, new locations, etc.
- Pure Risk — Risks where the possible outcomes are either a loss or no loss. It includes things like fire loss, a building being burglarized, having an employee involved in a motor vehicle accident, etc.
Anything that an organization does to try and manage risk is generally considered a step in the right direction. Normally this begins with risk identification – the charting of risks in a way that allows organizations to identify the more common and serious risks so that they know the areas to which they need to commit resources.
Identifying risks in business decisions is much the same as with the process of identifying any risk. The key is to be thorough and use all the sources available. These risks can be prioritized and mapped in the same way as all other risks.
Want to learn more? Tonex offers Risk Management Training, a 2-day course that covers framework, methods, and practice risk management across industries through real case studies. Concise and comprehensive, it covers both the theoretical underpinnings of risk management, as well as practical techniques for coping with financial challenges.
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- Executive Leadership
- Business Intelligence and Business Writing
- Operations Management Training and Change Management
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- Product and Project Management Training
- Project Management Certification
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