Risk Management Explained
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Before talking about risk management we require to know what 'risk' is. A risk is insecurity of result. When an action is taken, and the likelihood of the outcome is unsure, it is called as risk. There are risks involved in every action that is taken. Setting up a business is a risk, getting a house is a risk. The topic of risk management has diversified so much that from risk management of monetary institutes to software have all become specialised fields. What is understood or practiced usually as risk management is explained underneath.
1. Identification of a risk 2. Working out the probability of risk occurring 3. Determining the consequences of a risk occurring 4. Finding ways of reducing a risk 5. Reducing the probability of a risk occurring.
Before starting out on any project, all kinds of possible risks that can happen and tune into a reality are recognized. Let's consider an easy example; if you go to cross a street, you open yourself to the risk of being hit by a speeding car. If it's a busy street with a lot of traffic, the likelihood of this occurrence becomes even higher.
Now if a speeding car hits you, the least that can take place to you is that you might get small cuts and bruises. The worst effect would be you being killed. Now, when you know what the results of taking a risk can be, you will find a way of diminishing the risk. How do you do that? In this case you will come across the close pedestrian crossing the road and use it. In this manner, you will be decreasing the risk factor involved in crossing an active street.
Risk management in any project follows the same basic principles. When a credit card company issues you a credit card, they first run a credibility check. They check to see if you will be able to repay your bills. Based on your income and your expenses they issue you a credit card. If they feel that you are at a greater risk they will cap the credit limit accordingly.
Insurance companies take a risk when they sell insurance. Such as, an insurance company sells general insurance. They have a number of sales agents who are selling insurance. At this moment, if the insurance company hit upon the fact that eighty percent of the shops and offices in a building have been insure by them. They will at once 'spread' the risk. How they do it is by getting finance companies to cover fraction of the insurance. If the building catches fire, the insurance company as well as the underwriters would accept the loss. In case the insurance company does not spread the risk, they would have to pay the complete insurance and the company is likely to fold up in such an occurrence.
Likewise, a bank is under risk if they spend all their capital in a sole project. If the venture falls short, the bank will fall down. In property, stocks, and any other trade, risk management plays a main part.
In factories and work places risk management teams evaluate the likelihood of disaster occurring. Then they suggest ways of reducing the possibility of that risk occurring. Making workers wear protective and safety gear is a means of risk management.
The gist of risk management is to try to reduce the chances of a tragedy from occurring. Identifying possible risks and reducing the chances of its occurrence. There are unknown risks that can occur and are generally overlooked when doing risk management. Like an earthquake occurring in an area which has no history of earthquakes and is not on a fault line. Such a risk would be left out of the scope of risk management.
Article Source: Articlelogy.com
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