The process to manage the unfavorable effect in an organization by making and carrying out decisions to minimize this kind of risk is known as Risk management. The effects are like insurance premiums and claims costs. To control the risk it is necessary to pay more attention thus protect the business from uncertainty, reduce costs, and increase the probability of business success.
When there is an opportunity of profit and less there exist risks. Losses refer to as exposures. Exposures are losses from a sudden fire and also from a damaged building.
Risks are of two categories:
1. Pure Risk – Either loss or no loss risks which include things like fire loss, a building being burglarized, having an employee involved in a motor vehicle accident, etc.
2. Speculative Risk –Either profit or loss or status quo risks which include things like stock market investments and business decisions such as new product lines, new locations, etc.
Why Manage Risk?
The reasons to manage risks are:
• Saving resources like people, income, property, assets, time
• Protecting public image
• Protecting people from harm
• Preventing/reducing legal liability
• Protecting the environment
Steps to implement Risk Management:
1. Risk identification: If you can chart your area of risks it helps to identify the more common and serious risks so that you need to commit resources.
2. Quantify and prioritize: Risk mapping will make you aware of those risks on which you need to focus. To prevent and mitigate risks work together with your organization’s members to cover all the risks.
3. Be risk-sensitive, not risk-averse: You have to know that risks are everywhere. Thus being risk-sensitive. Take a deliberate and methodical approach to deal with risk.
4. Identify risk in business decisions: Identify risks in business to know which area you have to use the sources. These risks also can be prioritized and mapped.