What is Risk Management?

Posted in Marketing & Strategy Articles, Total Reads: 704 , Published on 18 January 2016
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Risk management is one of the most critical aspects of management. Being safe in our own small world will not give access to many opportunities, but if you open yourself up to the world, you are also vulnerable to risks. Risk is like stress. The lesser, the better. The more, the meaningful!


A friend of mine who does not believe in plastic money, believes in keeping money in his cupboard drawer. Now staying in an all-boys hostel, this option is not the safest one. However, knowing the risk associated with the same, his concluding line has always been: “When it happens, we will see!”


Image: pixabay


This is the problem with most of us. We perceive risks as something of the future. We do not believe in them, because they don’t happen NOW. And then, when they happen, it is often too late.

 

Risks, today, are everywhere. In every walk of life, in every day and in every aspect of our being. It’s risky to cross a road, it’s risky to drive at night, and it’s risky to make investments. Each of these have an aspect of a prominent term that we define as “loss or failure”. And, it is the fear of this loss or failure that sometimes takes over our will to take up any risks at all. The concept of risk has a direct relation with the concept of returns. Less the risk, less the return and more the risk, more the return.

 

The concept of risk management is a very broad one. The entire principle revolves around creating “Value” – worth. Risk management today is an integral part of any organization, especially in decision making. It encapsulates: uncertainties, risks and assumptions. Risk Management engulfs four major stages associated with any risk. It talks about identifying the risk(s), assessing them constantly, monitoring the risks and finally controlling it with appropriate measures and actions.

 

Breaking these steps down, and understanding the scope of each of them would be as follows:

1. Detect the Risk:

Risks are everywhere. What is important is to identify them, and then play the game around it. Many companies, to play safe, use checklists to identify potential risks or risks of the future. These lists are based on their experiences and learnings from the past projects. Risks are also identified sometimes by category. For example, financial risks, political risks or environmental risks.

 

Detecting risks, helps an organization understand the future obligation it may have to face due to the peril. Thus, risk management is a long, tedious job, but yet, a very important one.

 

2. Measure the Risk:

Once risks are identified, it becomes crucial to understand their nature, effect and implications. The risks are calculated on the basis of the probability of its occurrence and the damage associated with it. Measuring and estimating risks, allows an organization to set aside funds and other resources to overcome these risks.

 

Risk measurement generally happens in a brainstorming (workshop) session. In such sessions, each event is analyzed, the risks are identified and their possibility of occurrence is studied and its bearing is rated as low, medium or high. This calls in the need for a Risk Easing Plan (REP). A REP mainly addressed the articles that have high ranking on both the elements – possibility and bearing.

 

3. Screen the risk:

The risk screening is mainly done to reduce the effect of an unanticipated event. Risk screening mainly deals with risk avoidance, sharing, reduction and transfer. Risk screening is mainly to ensure that risks are constantly reviewed in line with the forbearance level and rocketed as suitable. Screening is done mainly by reviews at regular intervals.

 

Risk forbearances provide confines, against which risks can be equaled. This is done to understand whether the risks are acceptable or not. Forbearances provide edges against which action can be taken continuously.

 

4. Risk Control:

Identifying, assessing and screening risks finally lead to the last point in the loop, which is effective risk control. Risk control is mainly the route which acts as the governing tools and invasions that are applied to manage concerns, condense or avoid risks and to exploit opportunities.

 

 

Source: sra

 

The above 4 steps happen one after another. However, the 2 links that continuously affect and effect these four steps are the concepts of “Learning and Adaptation” and “Evaluation”. This completes the infinity of the Risk Management process.

 

Risk, even today may be a “When it happens, we will see”, but this perception is changing, and in the next few years, this concept would be a super riding factor for organizations. Risk Management may be stressful! But then, even stress is sometimes good!

 

This article has been authored by Goolam Ali from SIBM Pune



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