What is Risk Management?
Risk management helps to identify, assess, and control financial, legal, also strategic, and security risks to an organization’s capital and earnings.
Primary Purpose of Risk Management
Risk management aims to identify the potential problems earlier that can occur.
Importance of Risk Management
Risk management is essential because it empowers a business with the tools to identify and deal with potential risks adequately. A risk has been placed. It is easy to mitigate. An example of risk management is avoiding potential data breach damage. A company could also choose to avoid storing sensitive data on its computer systems. To control or mitigate a cyber attack, a company could increase its technical controls and network oversight. To transfer the risk, a company could purchase an insurance policy.
Types of Risk Management
There are five primary techniques or types of risk management.
- Avoidance.
- Retention.
- Spreading.
- Loss Prevention and Reduction.
- Transfer through Insurance and Contracts
Main Risk Management Strategies
The four main risk management strategies are:
- Risk acceptance.
- Risk transference.
- Risk avoidance.
- Risk reduction.
Primary Goals of Risk Management
Below are the 3 primary goals of risk management.
- To develop a shared understanding of risk across multiple functions and business units so that we can manage the risk cost-effectively on an enterprise-wide basis.
- To achieve a better understanding of risk for competitive advantage.
- To build safeguards against earnings-related surprises.
Benefits of Risk Management
Risk management comes with a lot of benefits. Some of the are as below.
- More efficient, consistent operations
- Increased focus on security
- More confident, successful initiatives
- More satisfied customers
- A healthier bottom line
Principles of Risk Management
The principles of Risk management include,
- Organizational Context.
- Stakeholder Involvement.
- Organizational Objectives.
- Management of Risk Approach
- Reporting.
- Roles & Responsibilities.
- Support Structure.
- Early Warning Indicators.
10 P’s of Risk Management
In risk management, there are 10 P’s that define risk management. These P’s are;
- Planning
- Product
- Process
- Premises
- Purchasing/Procurement
- People
- Procedures
- Prevention and Protection
- Policy
- Performance
What are Risk Factors?
The risk factors are characteristics such as the biological, psychological, family, community, or cultural level that precede and are also associated with a higher likelihood of adverse outcomes.
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