Link to the Obracast Podcast:
open.spotify.com/episode/43mi...
Risk management encompasses the identification, analysis and response to risk factors that are part of the life of a business. Effective risk management means trying to control future outcomes as much as possible, acting proactively rather than reactively. Therefore, effective risk management offers the potential to reduce both the likelihood of a risk occurring and its potential impact.
Risk management structures
Risk management frameworks are tailored to do more than just pinpoint existing risks. A good risk management framework must also calculate uncertainties and predict their influence on a business. Consequently, the result is a choice between accepting the risks or rejecting them. Accepting or rejecting risk depends on the tolerance levels that a business has already set for itself.
If a company defines risk management as a disciplined, ongoing process aimed at identifying and resolving risks, risk management frameworks can be used to support other risk mitigation systems. They include planning, organizing, cost control, and budgeting. In this case, the business does not usually have many surprises, as the focus is on proactive risk management.
Risk Response
Risk response generally takes one of the following forms:
Avoid: A company strives to eliminate a specific risk by getting rid of its cause.
Mitigation: Decrease the projected financial value associated with a risk, decreasing the possibility of the risk occurring.
Acceptance: In some cases, a company may be forced to accept a risk. This option is possible if a business entity develops contingencies to mitigate the impact of the risk, should it occur.
When creating contingencies, a company needs to engage in a problem-solving approach. The result is a very detailed plan that can be executed as the need arises. Such a plan will allow a business organization to address barriers or roadblocks to its success as it can deal with risks as they arise.
Importance of Risk Management
Risk management is an important process because it empowers a company with the tools it needs to properly identify and deal with potential risks. Once a risk is identified, it is easy to mitigate. In addition, risk management provides a company with a foundation on which to make sound decisions.
For a business, risk assessment and management is the best way to prepare for the eventualities that may arise in the way of progress and growth. When a company evaluates its plan for dealing with potential threats and develops frameworks to address them, it increases its chances of becoming a successful entity.
In addition, progressive risk management ensures that high-priority risks are addressed as aggressively as possible. In addition, management will have the necessary information that can be used to make informed decisions and ensure the business remains profitable.
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