What is Risk Management?

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When one gets into business, or makes an investment, there is always a risk element involved, because even the most accurate calculations cannot predict everything, or take every aspect of the economy into consideration. Thus, risk management is the practice of identifying, assessing, and even prioritizing the risks of any business or financial endeavor, in an attempt to eliminate or minimize them. This field takes into consideration an economical application of the existing resources in order to control, minimize or monitor possible or probable unfortunate situations and their effects.

However, risk management isn’t only defensive, but proactive as well, in that it tries to maximize the potential and the opportunities precisely by knowing what the risks are, and what the odds of their occurring. Here, risks are defined as the effect of uncertainty on someone’s or something’s goals and objectives. There are many factors which ca pose as risks for business, one of the most important being the uncertainty and fluctuation of financial markets around the world. Other risks can be represented by project failures during implementation of a project, such as design failures, defects in development, production, and even unforeseeable and unpreventable events such as accidents, natural causes or disasters, legal liabilities, and so on. In certain situations, although seldom, the risk comes from competitors, which create marketing attacks, or undermine their competitors’ marketing strategies.

There have been developed several methods of risk management, and they are employed depending on the character of the company or business in question, or rather in need of them. These methods also vary depending on which aspects of the company require risk management: whether it is the security aspect of business, the industrial process, the engineering, public health, financial portfolios or safety. The first part of any risk management is pinpointing the risks and trying to determine what damage they could cause, and where.

Part of the solutions of risk management include removing the threat completely, or steering it towards a party where it can do less damage; another solution is to try to reduce the threat, or the negative effects of the risks. After they have been identified and characterized, the best solutions for dealing with them are sought. Sometimes, risk management is all about cost reduction and therefore profit increase. Certain companies employ risk management methods in order to help allocate their resources better; thus, they can see which are the most vulnerable parts of the company and which the strongest, and they can choose to invest in weaker links in order to reinforce the business as a whole.

September 2021