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Risk Management

What is Risk Management
Risk Management is a field of management focusing on risk reduction and analysis, using different methods and techniques of risk prevention that eliminate existing or reveal future factors increasing risks.

Risk management“To try eliminate risk in business enterprise is futile. Risk is inherent in the commitment of present resources to future expectations.”

Peter F. Drucker

Risk Management is a field of management focusing on risk reduction and analysis, using different methods and techniques of risk prevention that eliminate existing or future factors which may increase risks. Risks are an ubiquitous and characteristic side-effect of the functioning of organizations in today’s turbulent environment.

Risk management is a systematic, repetitive set of interconnected activities whose aim is to manage potential risks, i.e. reduce the likelihood of their occurrence or reduce their impact. The purpose of risk management is to avoid problems and negative phenomena, avoid the need for crisis management and to avoid problems. Risk management consists of four interrelated phases, namely risk identification, risk assessment, risk handling (or reduction), and risk monitoring.

There are many types of risks in different areas:

  • Economic and financial risk
    • Credit risk
    • Investment risk - an estimate of the profitability and reliability of investment
    • Insurance and reinsurance risk – en estimate of a size of the risk and likelihood of claims
  • Project Risks
  • Market Risks
  • Technical risks
  • Social Risks
  • Operational Risks
  • Safety risks
  • and others

For risk management, risk analysis is essential. Using risk analysis exposes the degree of danger (threat), which the organization isfacing; to what extent its assets are vulnerable to these threats, how high the probability of the threat occuring is and what impact it can have on the organization. The basic principles of risk management can be summarized in the following statements:

  • Every human activity brings some risk
  • Zero risk does not exist

The Responsibility for risk management in organizations is distributed throughout the management. The highest responsibility is naturally with owner, the executives and top management of the company.

In small organizations the responsibility for risk management is concentrated at the level of the executives, because it is inefficient to employ a dedicated full-time risk manager. In medium and large organizations the responsibility is spread among individual managers. Large organizations and organizations operating in high-risk environments (such as banks, insurance companies, petrochemical and energy industries, aerospace industry, transportation) have a designated specialist (risk manager). Almost always, risk management is associated with the role of CFO (Chief Financial Officer), as the impact of risks (damage) as well as countermeasures, can be financially expressed and have an impact on financial planning.

Among the best known methods and methodologies in risk management are:

Frameworks in the field of risk management:

Among the analytical techniques applied to identify potential risks are:

Standards in the field of risk management:

Key terms in risk management:

Related professions:

Related management fields:

Related industry:

Insurance industry - see Insurance Company

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Last update: 10.06.2013
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