What is Risk Management?
Risk management is a critical business practice that assists companies in identifying, evaluating, tracking, and improving the risk mitigation process in the business environment.
Unawareness of a competitive risk can result in a loss of market share, unawareness of financial risk can result in financial losses, unawareness of a safety risk can result in an accident, and so on. So the main goal of risk management should be to ensure that the company and its employees take steps to reduce their exposure to those factors.
Why is Risk Management Important?
Risk management is important because it informs businesses about the threats in their operating environment and allows them to reduce the risk before they occur. Businesses would suffer serious losses if risk management is not implemented because risks would catch them off guard.
Here, are 5 key elements of risk management that should be considered
Risk Identification - The first step is to identify the risk that the company is subjected to in its operating environment. It's critical to identify as many risks as possible. There are various types of risks such as legal risks, market risks, environmental risks, and many more. While identifying the risk, it's just not important to focus on the risk that the business is currently facing but also that might emerge in the future.
Risk Analysis - Once the risk is identified, the next step is to identify the potential needs and their likelihood. It is also critical to comprehend the relationship between the risk and various organizational factors. Risk analysis assists businesses in prioritizing risk mitigation.
Evaluate the risk or Risk Assessment - Business risk needs to be prioritized. It is critical to rank risks because it allows the organization to gain a holistic view of the organization's risk exposure. There are two types of risk assessment: Quantitative and Qualitative risk assessment.
Risk Mitigation - Risk mitigation is the action that the business and its employees should take to reduce the risk. The implementation may involve the development of training materials for new employees, security awareness training, and many more. Controls must be designed by the organization to reduce risk to acceptable levels. These controls must be tested to ensure that they are properly designed and function properly.
Risk Monitoring - The process of keeping an eye on the situation through regular risk assessment is known as risk monitoring. There is some risk that cannot be eliminated and also some kinds of risks that are considered to be minor but gradually turn out to be a major threat to the business and its revenue. It is critical to understand that risk management is not a one-time event; rather, it is a process that occurs throughout the life of an organization as it attempts to anticipate threats and deal with them proactively before they have a negative impact.
The Bengal Institute of Business Studies is one of the best colleges for an MBA in Financial Management as the faculties of BIBS help students develop competencies across four dimensions—domain, technology, application, and customer service—to equip them with the skills required by modern-day banking and finance institutions.
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