| Every business carries an element of risk. Therefore, | | | | and net income. This helps promote growth through |
| managing risks is crucial process in many | | | | profit, continuous operation and stable earnings.The |
| organizations. Depending on the business, steps can | | | | function of risk management is to organize and carry |
| be taken to reduce the frequency and intensity of | | | | out a plan to control or reduce the risks to which a |
| risk. Risk management is a process or group in an | | | | firm is exposed. This planning involves a five-step |
| organization that takes management action to reduce | | | | process. The first step is to identify potential risks. |
| risk. This activity involves the process of measuring | | | | The method of identifying risks may depend on the |
| and developing strategies to manage the risk. The | | | | organizational culture, industry practice and |
| strategies employed include transferring the risk to | | | | compliance. Once risks have been identified, the next |
| another party, avoiding the risk, reducing the | | | | step is to assess the potential severity of loss and |
| negative effect of risk, and accepting some or all of | | | | probability of occurrence. The third step is to find a |
| the consequences of a particular risk.There are two | | | | potential treatment for the problem. This may involve |
| kinds of risk management. Traditional risk | | | | the transfer, avoidance, reduction or retention of a |
| management is focused on risks stemming from | | | | potential risk. Next is to implement the plan by |
| physical and legal causes like natural disasters, | | | | choosing the right method of treatment. Prior to |
| accidents, death or lawsuits. Financial risk | | | | implementation, a review and evaluation of the plan is |
| management focuses on risks that can be managed | | | | necessary.Initial risk management plans are never |
| by using traded financial instruments. Large | | | | perfect. Practice, experience and actual results, will |
| corporations employ risk management teams while | | | | necessitate changes in the plan. Therefore, the plan |
| smaller corporations practice informal, if not formal, | | | | should make room for flexibility in decision making. |
| risk management techniques that are rolled into the | | | | Risk management is considered an art in |
| responsibilities of operational managers. Risk | | | | management circles and experience and exposure to |
| managers recognize and review their organizations | | | | situations helps mastering this art. |
| loss exposures including property, liability, personnel | | | | |