We live in an uncertain world. Each day individuals, whether consciously or unconsciously must make decisions that are based on an assessment of risk. Each time we cross a bust intersection our minds, often without our conscious knowledge – but certainly with input from our various senses is evaluating the risk to life and limb.
Businesses have often been likened to living organisms – they grow, feed on certain inputs (be they cash or raw materials, or even intellectual capital) and in certain circumstances – although this is stretching the metaphor – reproduce, spawning subsidiaries and spinning off related businesses. Also Read about Home Insurance .
Just like a living organism businesses need to deal with uncertainty
This is at the core of risk management.The classic definition of risk management encompasses the idea that an organization must identify and assess the level of risk that it faces – either through its own activities or external forces. Once these risks are identified they must be prioritized. Following this process the resources of the business must be used to minimize those risks and continually monitor the ongoing impact of risks. This process is designed to increase opportunities and assist the business in reaching its strategic goals.
The classic risk management model consists of five steps – although there are variants which have up to seven steps the five step approach is widely accepted as the foundation of effective risk management.
The first step in the risk management process is to identify the circumstances where risk provides a challenge. Classically this involves an environmental analysis where the relationship between the business can be mapped to the environment within which it operates.
The second step is the identification of specific risks that are associated with the threats that were identified during the environmental analysis. One of the challenges during this phase of the process is to keep focus on risks that have a probable likelihood of impacting on business activities. By losing focus (there is the risk of a meteorite striking a factory operation – but it’s an extremely unlikely event) the organization may not be able to put in place plans to mitigate various types of risk.
These types of risk can include; legal, physical, financial and ethical risks.
Third step in the process is risk evaluation where the likelihood of the risk is judged by a thorough understanding of the nature of each type of risk as it pertains to operations. The two factors that must be taken into account are the severity of the risk and the likelihood of occurrence. The fourth step in the process is risk control. This may involve direct instruction or action to remove the source of risk in order to prevent negative consequences. There is an accepted hierarchy to the actions associated with this step. This is (in order of priority): the elimination of the hazard, substitution of the hazard, isolation of the hazard, and exercising control. there are also a number of tactical steps that can be taken such as the provision of the correct equipment to mitigate risk.
The last step is the all important task of monitoring and setting up a process of review to ensure that the risk management process is effective and continues to identify new risks and monitor the evolution of existing risk under the categories that have been identified.
Risk management is an essential part of doing business today – which is why every business needs to go through the process on a regular basis. Know about https://procominsurancecompany.com/