Risk Management: Definition and Management
There are several definitions of risk management available out there. Although
the risks involved in a startup company, an existing business, an institution,
an individual, and a household vary, the principles and methods of handling it
are basically the same.
In general, the definition of risk management can be summed up as follows: it
is a process of identifying and analyzing risks and then taking appropriate
plans and actions to avoid it if it has not yet happened, to minimize or
eliminate it if it does happen, while still keeping attainable goals. You also
have to track your risks whether or not it has happened.
From a business perspective, risk management is necessary because risks are an
inevitable part of any business. While some will have minimal effects on it,
others can have catastrophic effects and threaten the long term existence of the
business. Understanding the principles and methods on how to deal with the
risks will help the business in effectively taking the necessary steps and
actions to ensure the survivability of the company.
In expanding the definition of risk management, the key words to properly manage
risks are (1) identify, (2) analyze, (3) plan, (4) take action and (5) keep
track of the risks. But the underlying statement here is that the management
must know its job and do its job for proper risk management. Therefore, to
ensure the survival of the business, the company has to first, identify most or
all of the risks (and the people, situation or items involved in the risks).
Second, management then evaluates the likelihood of it happening and the
consequences if it does happen. Third, analyze and prioritize the options
available to solve the risks (and identify the person/s responsible for its
implementation). And fourth, keep a track record of their risk management and
take action if action is needed.