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