Before discussing risk management we need to understand what is 'risk'? A risk is 'uncertainty of outcome'. When an action is taken, and the probability of the outcome is uncertain, it is called as risk. There are risks involved in every action that is taken. Setting up a business is a risk, buying a house is a risk. The topic of risk management has diversified so much that from risk management of financial institutes to software have all become specialised fields. What is understood or practiced generally as risk management is explained below.
Recognition of a risk Working out the likelihood of risk happening Knowing the cost of a risk occurring Discovering methods of reducing a risk Decreasing the probability of a risk occurring.
Before starting out on any venture, all sorts of prospective risks that can takes place and tune into an actuality are acknowledged. Let's consider a straightforward example; if you go to cross a street, you expose yourself to the threat of being hit by a speeding car. If it's a packed street with large numbers of traffic, the chance of this incident 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 values. When a credit card company issues you a credit card, they initially go for a credibility check. They check to observe if you will be clever to pay back your bills. Based on your income and your expenditures they issue you a credit card. If they sense that you are at a larger risk they will cap the credit limit in view of that.
Insurance companies take a risk when they sell insurance. For example, an insurance company sells general insurance. They have several sales agents who are selling insurance. Now, if the insurance company finds out that eighty percent of the shops and offices in a building have been insured by them. They will immediately 'spread' the risk. How they do it is by getting underwriting companies to cover part of the insurance. If the building catches fire, the insurance company plus the underwriters would bear the loss. In case the insurance company does not spread the risk, they would have to pay the entire insurance and the company is likely to fold up in such an event.
Similarly, a bank is under risk if they invest all their capital in a single venture. If the venture fails, the bank will collapse. In property, stocks, and any other business, risk management plays a key role.
In factories and work places risk management teams weigh up the possibility of failure occurring. Then they recommend techniques of decreasing the prospect of that risk to take place. Making workers put on shielding 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.
Recognition of a risk Working out the likelihood of risk happening Knowing the cost of a risk occurring Discovering methods of reducing a risk Decreasing the probability of a risk occurring.
Before starting out on any venture, all sorts of prospective risks that can takes place and tune into an actuality are acknowledged. Let's consider a straightforward example; if you go to cross a street, you expose yourself to the threat of being hit by a speeding car. If it's a packed street with large numbers of traffic, the chance of this incident 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 values. When a credit card company issues you a credit card, they initially go for a credibility check. They check to observe if you will be clever to pay back your bills. Based on your income and your expenditures they issue you a credit card. If they sense that you are at a larger risk they will cap the credit limit in view of that.
Insurance companies take a risk when they sell insurance. For example, an insurance company sells general insurance. They have several sales agents who are selling insurance. Now, if the insurance company finds out that eighty percent of the shops and offices in a building have been insured by them. They will immediately 'spread' the risk. How they do it is by getting underwriting companies to cover part of the insurance. If the building catches fire, the insurance company plus the underwriters would bear the loss. In case the insurance company does not spread the risk, they would have to pay the entire insurance and the company is likely to fold up in such an event.
Similarly, a bank is under risk if they invest all their capital in a single venture. If the venture fails, the bank will collapse. In property, stocks, and any other business, risk management plays a key role.
In factories and work places risk management teams weigh up the possibility of failure occurring. Then they recommend techniques of decreasing the prospect of that risk to take place. Making workers put on shielding 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.
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