Defining Risk Management Techniques

Any Risk Management System can actually be boiled down to certain risk management
techniques which they all have in common. This is because every Risk Management System you
can think of actually does the same thing every time: it identifies the risks, evaluates
the importance of those potential risks, prioritizes the risks based on degree of damage
and immediacy of damage which they can wreak, the creation of appropriate risk management
strategies so that the effects of these risks can be mitigated and perhaps completely
avoided sometimes, and finding the managerial resources that should be used to create,
establish and implement the Risk Management System chosen.

Techniques in risk management can be said to be somewhat like the following:
– determining the context in which the risks will be experienced
– acknowledging which risks will be experienced in which parts of the organization
– predicting when those risks will probably hit those parts of the organization
– understanding and estimating the possible impact of absorbing risks and avoiding
– choosing the appropriate risk management treatment for the situation faced by the

Under risk management treatment, we have the following options:
– retention (meaning the risk is simply tolerated)
– mitigation (meaning the risk is treated accordingly so that its effects are reduced)
– elimination (meaning the organization attempts to completely terminate the source of
the risk, and the risk itself as a result)
– purchasing insurance (which may also be termed risk transfer, meaning we allow
another entity – the insurance company – to assume the burden of the risk, particularly the
financial burden)

When trying to treat risks and their impact, there may be times when the organization has
to make a compromise between risk treatments. For example, the leaders may find that it is
unacceptable based on principle to tolerate risk but find that they lack the financial
capacity to purchase enough insurance coverage for risk transfer. So they are forced to
live with the possibility of fire breaking out in their facility until such time that they
can have enough money to purchase adequate fire insurance coverage.