Now a days, the businesses has become complicated and advanced. The use of high end information technology, diversification and all other factors present in nowadays running globalised businesses has led to a great demand for the support of Risk Management.
Every other business has to take risks as it is directly related to reward and gains. But the real game lies in analyzing and predicting the risks involved and enacting the steps which can be taken in case the future occurrence start causing harm to the working and profitability of the organization.
Risk Management is a process of identifying and assessing, systematically an organization’s risks and devising and taking actions to protect the organization from them. It is best used as a preventive measure rather than a reactive measure.
The task of the risk managers is to predict and enact measures to control or prevent, losses within a company.
Risk managers can be anyone with a specialization in a particular field like a Chartered Accountant to test the financial risks, a Computer Engineer to test the working of the information technology involved in the organization; or a geologist to test the risk in the place of the business, etc. Therefore, the risk managers analyze the particular risk involved with the working of the organization and report it to the entity with particular recommendations so that the future unpredictable occurrences could be controlled or can be prepared for.
The different types of risks which a business can associate with are –
1. Business risk – involves entity’s market or industry
2. Market risk – such as fluctuation in prices , interest rates etc.
3. Credit risks – related to potential for not receiving payments owed by debtors
4. Operational risks- related to internal controls
5. Legal risks- possibility of change in statues or parties not meeting their contractual obligations
There are certain risk management methods which the risk managers rely to help organizations avoid and mitigate risks in an effort to position them for gains. The 4 methods are –
1. Risk avoidance – it includes avoiding products and services and trade dealings with the potential for losses , like dealing with banned or restricted products
2. Loss prevention – it roots out the potential for losses by regular training of employees and implementing safety programs to eradicate risks
3. Loss reduction – it seeks to minimize the effects of risks through response systems that neutralize the effects of a disaster or mishap
4. Risk financing – popularly used it includes paying them by retaining or transferring their costs
The risk managers work with the company’s managers to formulate a correct combination of the upper stated techniques since these techniques can be used not mutually exclusive but complimentary.
There are many risk management companies present in the industry specifically dealing with the risk management of large corporate houses and businesses; providing them with best of consultancy in this particular field.
So this is how the risk managers work to establish an organization with minimal risks by dealing with the risks involved in a highly effective and comprehensive manner.
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