Risk Management

Meaning & Definition

Risk Management

Risk management is a process whereby organisations identify and analyse potential business risk and put in place policies to reduce or mitigate their exposure to these hazards. Prioritizing is an important part of risk management as companies will inevitably be unable to tackle all potential risks at the same time.

Frequently Asked Questions (FAQ's)

  1. Why is Risk Management important?

    As a preventive measure risk management can identify potential risks even before they occur. It helps in reducing the negative impacts that a risk could cause. Risk management is important as it enables project success and aids financial benefits. A successful risk management plan can guide employees in making wise strategic decisions that will help meet and exceed company objectives.

  2. What are the several types of Risks?

    The three major types of Risks that an organization can face are:

    • Business Risk- Risks that are caused by internal business factors and functions. These depict the company's ability to generate sufficient revenue to cover its operational expenses.
    • Non-Business Risk - Risks that are caused by external factors such as political, social and environmental conditions.
    • Financial Risk - Risks that refer to a company's ability to manage its debt and financial leverage.
  3. How has Risk Management evolved over the years?

    “Risk management has evolved along with the business model changes, from individual, transaction‑based decisions based on a combination of judgment and underwriting criteria to looking at aggregated portfolios of risk enabled by more robust analytical tools. While the tools and techniques available to risk professionals have continued to evolve, the interaction model between risk and the business has largely remained the same – an “us versus them” dynamic”, according to a report by EY.

  4. What are the various stages of Risk Management?

    1. Identify the risk.
    2. Analyze the risk.
    3. Prioritize the risk.
    4. Treat the risk.
    5. Monitor the risk.
  5. Is Risk Management a part of governance?

    Risk management plays a vital role in the governance of an organization. It sits clearly within the principles of good governance because governance, or corporate governance, is the overall system of rules, practices, and standards that guide a business.

  6. What are the benefits of having a Risk Management Plan?

    • Converts potentials risks into opportunities.
    • Improves asset management and maintenance.
    • Results in better decision making.
    • Protects the organization from legal liability.
  7. What are the basic principles of Risk Management?

    The five basic risk management principals governing risks in any organization are:

    1. Risk Identification.
    2. Risk Analysis.
    3. Risk Control.
    4. Risk Financing.
    5. Claims Management.
  8. How does Risk Management improve a company’s performance?

    Finding potential risks and turning them into opportunities rather than threat can consistently improve a company’s performance and is only possible if there’s an efficient risk management plan is in place.

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