What is Risk Management

What's risk management you ask? The International Standards Organization (ISO) identifies risk management as, "the identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events." On the other hand, how risk management is defined may range from industry to industry.



In the financial industry, risk management is centered on dealing with exposure to credit and market risk by determining its sources, followed by contingency planning and mitigating. From a global outlook, like global warming and economic stability of third world nations for example, distinctive risk management principals would likely be needed. The underlying point I'm making is that risk management correlates with the context it's being used in.



No matter the industry, there are some underlying principles that are foundational to risk management. Such principles are the "foundation" of risk management. They include information, proactive approach, continuous process, integration, global view and communication.



Global view refers to viewing all risk holistically and in relativity to what is transpiring around the globe. Communication looks at communicating with all stakeholders to be sure a strong understanding is achieved on every aspect of the risk in question. This is relevant as risks are viewed in a different way by different people. The proactive approach principal is vital because risk management exists foresee and plan for risks before they come about.



The information principle expresses getting a grasp on everything there is to be familiar with about a risk. This is essential for understanding the best way to counteract it. Among the more complicated principles stands out as the integration principle. Risk management really isn't something which should be managed exclusively; rather, it should be a key factor of the entire business. Risk management strategies need to be built into daily business operations to make certain risks are avoided, mitigated and effectively planned for continually. The last principle is continuous process. This principle says that you do not simply execute risk management processes and then leave. A risk manager should continually be applying and evolving risk management techniques day-to-day.



Most people don't realize that positive events can actually require risk mitigation just like negative events. A good example is if you're selling a product and demand unexpectedly jumps by one hundred percent. Do you possess the capability, materials and labor necessary to match the surplus demand? When considering risk factors, it's important to bear in mind that they can be both positive and negative in nature.



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