The Principles of Risk Management

Brock Kepert
Aug 27, 2017 · 3 min read

Minimize the Level of Risk

Risk management is a logical process or approach that seeks to eliminate or at least minimize the level of risk associated with a business operation. Essentially, the process identifies any type of situation that could result in damage to any resource within the possession of the company, including personnel, then take steps to correct factors that are highly likely to result in that damage.

At the core of effective risk management strategies is the desire to find ways to manage the degree of uncertainty that exists within any business enterprise. The first step in the process has to do with evaluating the utilization of resources as they current stand. This step involves understanding the logical flow of the production process and how it relates to the successful manufacturing of goods and services for sale to consumers. Once there is a solid grasp of how the organization functions, it is then possible to move on to refining that process with an eye toward managing that uncertainty factor.

Source: http://www.wisegeek.com/what-is-risk-management.htm

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Organizational Context

Every organization is affected to varying degrees by various factors in its environment (Political, Social, Legal, and Technological, Societal etc). For example, an organization may be immune to change in import duty whereas a different organization operating in the same industry and environment may be at a severe risk. There are also marked differences in communication channels, internal culture and risk management procedures. The risk management should therefore be able to add value and be an integral part of the organizational process.

Source: http://www.managementstudyguide.com/principles-of-risk-management.htm


Risk Management Should:

  • create value — resources expended to mitigate risk should be less than the consequence of inaction
  • be an integral part of organizational processes
  • be part of decision making process
  • explicitly address uncertainty and assumptions
  • be a systematic and structured process
  • be based on the best available information
  • be tailorable
  • take human factors into account
  • be transparent and inclusive
  • be dynamic, iterative and responsive to change
  • be capable of continual improvement and enhancement
  • be continually or periodically re-assessed

Source: https://en.wikipedia.org/wiki/Risk_management


Accept No Unnecessary Risk

Accept no level of risk unless the potential gain or benefit outweighs the potential loss. RM is a decision-making tool to assist the supervisor or individual in identifying, assessing, and controlling risks in order to make informed decisions that balance risk costs (potential losses) against mission benefits (potential gains). An unnecessary risk is one that if not taken, you can still accomplish the mission. For example, an employee forgets or refuses to use eye protection during grinding operations. The risk is painful damage to eyes, maybe even loss of sight, yet the grinding can be successfully accomplished without risk of eye injury, simply by using eye protection.

Source: http://www.sifacilities.si.edu/safety_health/docs/safety_manual/pdf%20PRISMout/ch_4_safety_risk_management_program.pdf


Creating a Secure Environment for Financial Information

Risk management for accounting is an approach a company will take when preparing financial information. Almost all business activities carry come level of risk; companies will need to institute principles to avoid taking excessive risk that may damage the company financially. Some of the best tips for this process include taking a conservative approach to recording financial information, avoiding the use of debt for purchasing assets and creating a secure environment for financial information. This approach helps companies complete a risk management for accounting analysis and reduce the potential for major business disruption.

Source: http://www.wisegeek.net/what-are-the-best-tips-for-risk-management-for-accounting.htm

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