What Is Risk Management?
Every business, small or large, faces challenges in insurance. Fire can cause damage to buildings, people can slip and fall, accidents can happen in vehicles, or loss can result from defective products.
Risk management refers to making and executing decisions that reduce the risk of financial loss as a result professional liability lawsuits. It is the process of identifying, evaluating, and then creating processes to reduce, eliminate, or control those risks. Risk management is the individual effort by each employee to reduce or eliminate hazards in their workplace.
Risk management is a continuous process of treating loss exposures. It also monitors risk control and financial resources in order to minimise the negative effects of loss.
Risk = Probability x Severity. Probability refers to the likelihood that an event will occur, while severity refers to the cost and extent of the loss.
Importance Of Risk Management
Even though we may not realise it, humans are constantly thinking about risk. Risk management is how we respond to the possibility that something will go wrong or suffer harm. Things do go wrong all of the time. Examples are: Car accidents, theft of wallets, unpredicted bad weather, and burnt meals are all examples of risk management. We could go on. We are programmed for managing risk.
How Does Risk Management Translate Into Business Success?
Because it equips businesses with the tools necessary to identify and manage potential risks, risk management is an essential process. It is easy to reduce a risk once it has been identified. Risk management gives businesses a foundation on which to make sound decisions.
Progressive risk management also ensures that risks with high priority are addressed as quickly as possible. Management will also have all the information they need to make informed decisions that will ensure the business continues to be profitable.
How to Manage Risk
- Resources to save: People, income, property and assets.
- Public image protection
- Protection of people from harm
- Legal liability prevention/reduction
- Environment protection
Strategies for Risk Management
- Get context. Learn the conditions under which the rest will occur. It is important to establish the criteria for evaluating risk and the structure of analysis.
- Risk identification. The company determines potential risks that could negatively impact a particular company process or project.
- Risk analysis. After identifying the risks, the company determines the likelihood of them happening and their consequences. Risk analysis is used to understand the impact of each risk on projects and objectives.
- Risk assessment, evaluation. After determining the likelihood and consequence of the risk, it is further evaluated. Based on the company’s risk appetite, the company can decide whether or not the risk is acceptable.
- Risk mitigation. Companies assess the most serious risks they face and create a plan to mitigate them by implementing specific risk control measures. These plans include risk prevention strategies, risk mitigation techniques, and contingency plans for the eventuality of a risk.
- Risk monitoring. A part of the mitigation plan involves following up on both risks and the overall plan for continuously monitoring and tracking new and existing threats. It is important to review and update the overall risk management process.
Risk Management Process
- Identify Potential Exposures To Loss
- Measuring Frequency and Severity
- Examine Alternatives
- Choose the best alternative to use
- Use the Chosen Techniques
- Keep an eye on the results
Risk Management Summary
Our tendency to view “risk” as a negative concept is to see it in predominantly negative terms. In the world of investment, however, risk is essential and cannot be separated from desired performance. Many risks can impact the survival and growth of business ventures. It is therefore important to know the fundamental principles of risk management so that you can reduce the negative effects on your business ventures. Learn more about Risk Management by talking with one of our team for a Tailored Training session.