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What is Risk management? What are steps in risk management process?

Risk management is a combination of the following 3 processes:
1. Risk identification
2. Risk assessment and
3. Risk prioritization

“Risks have been defined as the effect of uncertainty on objectives either positive or negative” as defined in the ISO 31000.

In the risk management process the above mentioned three processes are followed by the economical as well as coordinated application of the resources for the following tasks:
1. Minimize risk
2. Monitoring
3. Controlling the probability as well as impact of risks.
4. Maximizing the realization of the opportunities.

There are various sources of risks such as:
1. Uncertainty in financial markets
2. Project failures at any of the phases (design, development, sustainment life cycle, production)
3. Credit risk
4. Legal liabilities
5. Accidents
6. Natural causes as well as disasters
7. Deliberate attack from an adversary
8. Events of unpredictable and uncertain root cause

Various risk management standards have been developed in order to manage the risks well. Some of those standards are:
1. PMI or project management institute
2. NIST or national institute of standards and technology
3. ISO standards and
4. Actuarial societies and so on.

Three things namely definitions, methods and goals related to risk management vary widely with the following contexts of the risk management:
1. Project management
2. Security
3. Engineering
4. Industrial processes
5. Financial portfolios
6. Actuarial assessments
7. Public health and safety etc.

Below mentioned are some of the basic strategies that are used to manage risk:
1. Transfer of risk to another party.
2. Avoiding the risk.
3. Reduction of the negative effect of the risk.
4. Reduction in the probability of the risk.
5. Accepting actual as well potential causes of a particular risk.

There are certain aspects of risks that can be controlled however there are others that are facing criticism for showing no measurable improvement. The definition of the risk management can be found in ISO guide 73 “risk management vocabulary”.
– It happens in an ideal risk management that a prioritization process follows up wherever risks with greatest impact or loss and probability of occurring are taken up first for handling coming down to risks with lower loss and lower probability of occurrence.
– Practically, the risk assessment can prove to be difficult.
– There are certain types of risks that have a 100 percent probability of occurring but because of a lack of identification criterion they are ignored or neglected by the organization.
– Such risks are identified by a modified version risk management process called intangible risk management. Ineffective collaborations give rise to relationship risks.
– On the other hand ineffective application of operational procedures result in process engagement risks.
– Such risks have the following bad impacts:
1. Reduces the productivity of the knowledge workers.
2. Decreases the cost effectiveness.
3. Decreases profitability.
4. Affects quality of the services.
5. Affects reputation of the organization.
6. Brand value and earnings quality come down.

– Popping together the risk management and intangible risk management processes results in the creation of immediate values from the reduction as well as identification of the risks which further contribute in the reduction of productivity.
– Though, the risk management employs the idea of opportunity cost it does face difficulties when it comes to the allocation of resources.
– The resources that are spent on risk management would have better if used in some other profitable activities.
– But again, we should not forget that the negative effects of risks and worthless spending on resources are minimized in an ideal risk management process.

Principles of Risk Management Process

Below mentioned are some of the principles of risk management process:
1. Creation of value resources.
2. Being an integral part of organizational processes.
3. Being a part of decision making.
4. Being systematic and structured.
5. Being tailor-able.
6. Consider human factors.
7. Being transparent as well as inclusive.
8. Being iterative, dynamic and responsive to change.
9. Continuous or periodic assessments.

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