Risk Management in Business

Topics: Risk management, Management, Business continuity planning Pages: 9 (2729 words) Published: October 9, 2013

Risk Management Functions in Business

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In this competitive world the necessity of risk management is a very important task for any business to be successful in that particular industry. Businesses are supposed to prone with different types of risks. Some risks arise due to the uncertainty in the macroeconomic activity and others arise due to the firm specific activity (Rejda et al. 2013). 1 Role of Risk Management

1.1 Why risks need to be managed?
The necessity of managing risks beggar description. So, there should be detailed process in understanding the necessity of managing risks. In managing risks, first of all it is important to identify the all possible risks that might arise for a business. For example, a business should identify all kinds of risks which can affect its profitability and sustainability. Another important aspect in managing risks is the probability of hampering business activity by any risks. Not necessarily all risks are going to affect businesses equally. So, businesses should first find out all risks and then weight their probability of hampering business activity. Then comes the ways and means in which the business will mitigate its probable risks. The better the management of risks, the higher the profit potential and sustainability of a business (Blog method123.com 2010). 1.2Identifying Risks:

In order to identify risks business should know the types of risks. There are different types of risks: some are direct like natural disaster, legal, environmental, health and safety related, online security, intellectual properties, economic and financial risks etc, some indirect such as problems faced by suppliers, customers change in tastes, operational changes etc; some are related to hazards, some with uncertainty and some might even occur with the foregoing of any opportunities. Any business should carefully observe it s internal and external scenarios to find out what types of risks might affect a business. 1.3 Review of activities and Internal Environment:

Before setting up any risk management strategy the business should review all its internal activities and environment and thus find out what the major loopholes are and then take the necessary steps. 1.4 Setting Objectives:

Businesses should first know what the major and subsidiary goals, objectives, budget, limitations and obligations are and then formulate the risk management strategies. 1.5 Risk assessment (Impact and Likelihood):

This is a process of identifying, analyzing and evaluating all possible internal and external risks that might affect any business entity. The business entity thereby identifies and documents all necessary steps to be taken. It should also identify the best possible ways to find out the best measures to be taken for the risks. Under risk assessment, the business should highlight those threats which it had previously overlooked, identifying and improving weaknesses in preventive measures should have a contingency planning involving all staffs. 1.6 Risk response strategy:

This might include many activities like any business entity might totally avoid the activities which may rise to risks, reduce the probable impacts of any risks, can take any alternative action for minimizing risks or it might have a insurance policy or any other sharing policy. 2. Functions that have a role in managing risk

2.1 Strategic planning:
It is the planning for managing risks in a way whereby it identifies, assesses and manage risks and uncertainties which are identified through its internal and external environment which could otherwise have interrupted the business in achieving its strategic activities and thus creating value for its shareholders (Frigo et al. 2011). 2.2 Compliance:

Complying with various rules and regulatory obligations can save a business initially to get rid of being exposed to different kinds of risks. 2.3...

References: Major, Claudia; Schondorf, Elisabeth 2011, ‘Comprehensive Approaches to Crisis Management’, SWP Comments.
Rejda, George; McNamra, Michael 2013, Principles of Risk Management and Insurance, 12th Edition, Pearson.
Haddow, George; Bullock, jane; Coppola, Damon 2010, Introduction to Emergency Management, Fourth Edition.
Baranoff, Etti 2013,’the Necessity of Risk Management Culture and Incentive Pay’, Canadian Institute of Actuaries, Casualty Actuarial Society, Society of Actuaries.
Enterprise Risk Management 2007 , Business Continuity Plan.
Frigo, Mark; Anderson, Richard 2011, What Is Strategic Risk Management? STRATEGIC FINANCE.
Blog method123.com 2010, ‘Importance of Risk Management’, retrieved 31 July 2013 from blog method123.com, < http://blog.method123.com/2010/09/08/importance-of-risk-management/#!prettyPhoto>.
Enterprise Risk Management Committee 2003, Overview of Enterprise Risk Management (PDF). Casualty Actuarial Society.
DeLoach, Jim 2012, ‘Key Elements of the Risk Management Process’, retrieved 31 July 2013 from corporate compliance insight.com,
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