The Risk Management Process
Risk management helps an organization to identify risks; it makes it easier for a company to take proactive remedial actions when they are aware of the risks.
Financial lenders are more willing to increase credit limits to organizations that have risk management activities in place. Further, companies with well-planned risk management can more easily be financially prepared when a problem arises.
Risk management not only identifies risks, it also helps in prioritizing a risk. This allows a company to plan and respond to risks in a quick and appropriate manner. This course of action saves a company money, time and physical resources.
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In the financial world, risk management is the process of recognizing, evaluating and controlling threats to a firm’s capital and earnings. These threats may occur from a range of sources, including legal liabilities, financial uncertainties, strategic management errors, accidents and natural disasters. There are two types of events: positive events can be called opportunities, while negative events are classified as risks.
A risk management team prepares the risk management plan to identify, analyze and manage the risks associated with a particular project. It describes the performance of risk management activity and also the recording, analyzing and monitoring procedure of a risk management activity throughout the lifeline of the particular project. It also provides templates and procedures for recording and prioritizing the risk.
The risk management process consists of 3 steps:
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