What is risk and how to deal with it

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Life is notable for its instability. No wonder it is believed that dark stripes are replaced by light ones. Nothing stands still. What is risk? This is a condition or event that, if it occurs, can have a negative or positive impact.

The basic concept of risk and its varieties

There are other definitions. This is the probability with which an uncertain event can occur. It turns out that risk is a measurable quantity. There are varieties of businesses that are directly related to the management of different types of threats. The amount of income received depends on the effectiveness of their activities. These are investment, insurance companies.

It is important to have a good understanding of risk in order to deal with it. There are two types:

• The first includes threats that represent some negative impact.
• To the second - opportunities considered as a positive impact on a particular event.

Sequence of necessary actions

Risk management is a series of procedures and rules that relate to the theory of planning. Then they are identified, after which they are analyzed and monitored. For a clear viewabout what a risk is, you must first identify its source, and then determine the sequence of actions. Do not forget about secondary threats. It is also important to identify and analyze them.

In the management process, you need to perform the following tasks:

• Develop a management plan. This is a document describing the general concept, classification of risks, different ways of identifying them and options for responding. It is important to identify all threats, determine the degree of their impact on the project, and document each characteristic in writing. Monitoring and management allows you to better understand what risk is and what is the nature of its occurrence.
• A qualitative analysis should be carried out - prioritizing all risks for analysis and treatment, assessing and summarizing the likelihood of their occurrence and impact.
• Making a quantitative analysis is a numerical calculation of the impact of all possible threats.
• Prepare a plan for responding to likely threats - develop a list of actions to reduce them.

Lenders take risks too

Risk is almost an integral part of any commercial activity. This also applies to banks. However, financial and credit institutions prefer to avoid various threats or reduce them to minimum values. Contrary to the opinion of many, the risk of the bank and the level of those benefits that are expected are not connected by any unambiguous dependence.

There are 4 methods to respond to potential threats:

• Evasion.
• Transmission.
• Decrease.
• Acceptance.

Evasion is a change in the management plan to remove a threat, to protect the project from possible consequences. Many troubles can be avoided at an early stage of the project by obtaining additional data, as well as after the examination has passed.

Risk transfer - the shifting of negative consequences to another (third) party, which is given a premium for this.

Risk reduction is the reduction of the consequences and/or likelihood of a certain event to certain limit values. Special measures, preventive, are often more effective than the elimination of bad consequences.

Risk taking occurs when a team does not consciously change their management plan and find the right strategy to respond.

Remember, it is easier to prevent a risk than to correct its consequences. This applies to any activity!