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Risk Management

Any entity or endeavour is exposed to different types of risks, which can culminate in the loss, damage or destruction of that thing. Risk management is the process of identifying the different risks involved, assessing their impact, and prioritising the areas needing attention. The available resources are used economically to minimize the probability of an unfortunate event. Risk management also involves steps at reducing the impact of an unfortunate event.


Risk is seen in all spheres of human society, and can occur in markets due to uncertainty or lack of trust, it can be there in a credit transaction, sudden accidents, natural disasters or an act of war. Different Risk Management strategies are developed for application in various spheres. Certain standards also have been laid down by famous institutions in the field of Risk Management. These standards are in accordance with the field of application like public safety and health, financial markets, management of projects, security issues, processes in industries and so on. Risk Management can involve any or all of the strategies, like transferring of risk to a third party, avoidance, reduction of the negative impact, acceptance of the consequences and so on.


The main job of risk management is to first identify the risk areas and prioritize their handling. Usually the areas which are most prone to risks and having the highest amount of losses are handled first, and so on in a descending order. Sometimes it becomes difficult to choose between areas that have higher risk but lower losses, and areas that are prone to lower risks but high losses. This indecision can cause an organisation dearly, and a proper estimation has to be done. The other aspect of Risk Management is to do with the allocation of resources, and it is directly connected with the identification and prioritizing process.


After the identification and prioritizing, Risk Management, has to form a plan to either avoid the risk altogether, or reduce it to the possible extent. Eliminating a risk might involve stopping the risky activity totally. Mitigation of risk will include safety procedures, studying the surroundings and activities which are liable to produce the risk situation and so on. This step also includes the removal of hazards and hazardous materials. Mitigation also involves the study and viability of different loss reducing procedures. For example in the possibility of fire, the type of extinguishers that are to be used and their cost and impact on the area, will have to be studied and the best option has to be implemented.

Tags: credit, market, risk

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