Risk management is a broad term that encompasses identification and solving of problems that are likely to occur in an organization. Here is some information about the basics of risk management.
Risk management is the branch of study that deals with identifying, assessing and monitoring threats or risk (any uncertainty) for an organization. It can be applied to both public and private sectors. In public sector, risk management can be done in certain infrastructure development projects like construction of public buildings; whereas private sector risk management include business or workplaces.
Financial risk management, analyzes the economic value and manages the associated financial risk (if any). Enterprise risk management, on the other hand, encompasses all types of risk of a company, either financial or strategic. Let’s take a look at the basics of risk management.
Basics of Risk Management
The main principle behind any type of risk management is to recognize and minimize the upcoming problems, so as to decrease the losses that will be incurred in the near future. Risk management can be either continuous or non-continuous. In the former case, assessment of risk is done continuously, from the start of a project till its completion; whereas in the latter one, risk assessment is usually done only once during the initial stages of the project. Following basics are covered in a risk management program.
Reviewing Previous Data: Reviewing work or previous operations is applicable while assessing risk for private companies. The risk management committee analyzes the official data of the previous years, so that they can understand the company profile, and the current terms and policies of the company.
Identifying Potential Risk: Risk identification is an essential step in management of risk. In this stage, as the name suggests, the risks are identified and named. While identifying the risk, it is obvious that the sources of the risk are also examined in order to analyze the possible impact(s). The risk management team can compare the standard risk lists in relation to the particular project.
Assessing Risk: Risk assessment is done in terms of probability ratio. The probability of the risk should be greater than zero, otherwise there are no chances of the risk occurring. In other terms, if probability is usually less than 100, then uncertain problems may occur. If the probability ratio is 100, then the risk is referred to as an issue that is handled under issue management. Risk can also be assessed in terms of scale viz. low, medium, high and critical. Though, people think mostly about the negative impact of risk management, there can also be a positive impact.
Monitoring and Controlling Risk: After assessment of risk, there are four strategies that can be implemented; avoiding the risk (changing the plan), transferring the risk (to someone more responsible to handle it effectively), mitigating the risk (doing something to minimize the impact) or accepting the risk (applicable if the risk is negligible). By controlling the risk, we mean to assess the ongoing project and check for any new risk (if present).
To be precise, risk management is keeping control over the risk. Hence, it is quite possible that an organization may suffer losses, even after risk management. Managing risk is not a difficult task, rather we can call it a crucial job. It should be conducted by professionals, who are experienced enough to bring forth ideas and promote practices for the benefit of the organization. In a company, the project manager usually handles the management of risk. Risk management, if not done properly, can lead to loss of opportunities and/or business. If you have a deep interest in managing and solving problems, then risk management can be a rewarding and satisfying profession. Nowadays, there are certain schools that offer risk management courses.