In the operation of each business, there would be an element of risk which could hamper its successful operation.
Risk Management deals with managing these risks affecting the business. It could be better defined as a planned approach for managing
Uncertainties which is related to a risk. It would include evaluation of risk, developing strategies to manage such a risk and reducing the effects of
that risk if that could not be completely avoided.
Risk management would involve using processes, methods and tools to manage these risks to reduce its adverse effects as much as possible. Risk management would naturally involve identifying the possible risk factors - the things which could go wrong, then find out which of these risk factors or threats are really important to be dealt with and then plan for handling those threats. If you are able to identify the possible threats involved and be prepared to handle those risks, it will be easier for you to handle such risks reducing its effect on your business.
You will face a number of risks while running any business. Therefore a proper risk management plan should be part of business plan to enable you to accomplish your business objectives without much difficulty.
A typical risk management program should cover:
1.Identify all the risk factors involved with your business activities systematically.
2.Assess these risk factors and find out which of them are most likely to occur.
3.For all the risk factors identified, make out a plan to respond to these threats properly.
4.Proper systems are to be established in your business to handle such risks.
5.Monitor your systems on a regular basis to see how effective your system has been to handle such risks and make any addition or alternation to the system to make it more effective.
By going through the process of establishing a risk management system in your business, you would able to achieve the following objective:
1.It would improve your planning and decision making process by setting priorities against each risk factor.
2.It would help you allocate your financial and other resources more efficiently.
3.As you are aware of different risks involved, you would be ready to handle such risks and no fire-fighting would be required to handle such threats. It will also help you to avoid disasters or big financial losses.
4.This will also help improve your chance of your achieving your business objectives in time and within budget.
Application of risk management would become more important while launching a new product or do something new.
Whenever a risk condition occurs, we could handle them four different ways:
1.By accepting the risk
2.By transferring the risk
3.By reducing its effect
4.By eliminating it completely
We may accept a risk, when the cost to get rid of it is very high. We may transfer the risk by insuring against such risks. We may reduce its effect by introducing some new safety procedures or get rid of it completely by changing your method of producing your products.
It must be understood that risk management is an ongoing process. For its successful implementation, it requires regular monitoring.