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Introduction
Risk is imminent in any industry that a business organization may be operating. As a result, it is incumbent upon the management to put in place measures that will ensure adequate prevention of any possible risk. Risk management process has been defined as a process through which an organization plans and executes organizational activities with the aim of reducing or even avoiding effects of risks.
It is important, however, to note that it is capital and income of organizations that are shielded against risk. It should also be noted that for a typical risk management program to be effective, various vital components must be taken into consideration.
Risk identification
To begin with, it is important to note that one will be fight a futile war if the enemy is not known. Consequently, it is paramount that any risk management program begins by identifying which risks are most likely to occur and therefore affect the business. It is only after identification of the risk that it can be feasible to investigate causes of the risk.
The risk identification step should also include the identification of events or activities of the organization that are most likely to trigger risks. The manner in which management may chose to carry out the risk identification process usually depends on the business environment, culture as well as the regulations in place.
Risk Assessment
Risk identification enumerates the risks that can occur, but does not say anything about the most prevalent or the most severe risk. However, for proper risk management it is important for the firm to know which risks can easily occur and which ones have the highest effects on the company assets or income. Consequently, risk assessment to categorize the possible risks according to their probability of occurrence and severity of impact is crucial.
It is imperative to note that risk assessment also involves determination of the assets that are vulnerable incase a given risk occurs. However, risk assessment has one draw back which is its inability to precisely determine the pace at which various risks can occur. This is due to the unavailability of reliable statistics hence a higher degree of inaccuracy. Nevertheless, this component of risk management program is vital in assisting management to prioritize its actions.
Risk Handling
Risk handling involves the process by which strategies to tackle each risk are formulated and implemented. In addition, it includes the prioritization of the strategies in order to cater for the most crucial assets. The ultimate goal of any risk management program is to avoid any risk to the organization. However, it is practically impossible that risks can be completely avoided by any organization no matter how perfect the risk management program may be.
As a result, the programs aim to avoid the risk if possible or transfer the risk whenever necessary to institutions or people well placed to take the risk. Nevertheless, there comes a time when the firm cannot avoid some risks. In such a scenario, the management may choose to mitigate the effects of the risk or accept the risk either partially or in full. Whichever the strategy that a firm may choose, its priority should be to safeguard the organization’s capital, assets and income.
Conclusion
Risk management is not an easy or direct process as many may have wished it to be. Besides being influenced by uncontrollable conditions, it is clouded by a lot of uncertainties which leads to inaccuracies in decision making. Nonetheless, it is a crucial part of organization procedures and has to be undertaken. Therefore, it is upon the management of any organization to ensure that efforts are made to get the most appropriate risk management program implemented.
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