Risk management: a system for managing potential losses

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

The main goal of any business is to obtain the maximum possible profit with minimal risk. The system for managing potential losses is called risk management. It consists of two subsystems - the object of control and the subject of control. Risks arising from investment activities or in the process of economic relations between economic entities are the object of management.

Professionals who manage risk are subjects.

Risk management performs a range of functions:

- forecasting and planning, which consists in developing measures to keep the level of risk within the planned;

- organization - creation of a special structure within the enterprise that manages risks;

- motivation - a system to encourage professionals to effectively apply management decisions;

- control - analysis of the effectiveness of ongoing risk reduction measures;

- regulation and coordination - adjustment of programs and their implementation through effective delegation and distribution of responsibilities.

There are several risk management methods. Risk management uses them depending on the tasks:

- if the level of risk is too high, then it is most effective to apply the withdrawal method;

- if there is a possibility of its decline, then diversification and hedging, money or quality management are applied;

- partial or full transfer of risk is possible, for example, to an insurance company;

- the method of acceptance involves the formation of reserve or insurance funds or the implementation of other methods that can mitigate possible risks.

Types of risks can be:

- strategic, based on the long-term development of the enterprise;

- operational, arising directly in the process of project implementation or economic activity;

- financial, associated with capital losses;

- reputational, determining the status of the enterprise in the market.

Depending on them, separate categories of this concept are formed. Thus, financial risk management is used in investment activities, and is also the basis for the functioning of various credit and financial institutions.

Priority areas of risk management are determined depending on the overall assessment of external and internal factors that affect potential risks in the activities of a particular enterprise.

The main task of risk management is to recognize andclassification of risks, selection of instruments and methods of insurance against them, their minimization or complete refusal to implement projects if there is a high probability of significant losses. Effective risk management is the main platform for the successful and profitable development of an enterprise. Therefore, it is worth paying maximum attention to this! Now you have the basic information that will help you move in the right direction.