Saturday, December 16

Risk Management Basics

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For a business to avert possible risks events, it has to put in place good risk management plans. Business risks are profoundly one of the worrisome aspects in business success.  They are off-putting to investors and business management.  Risks are consequential event occurrences that subject a business into threats that manifest in form of damages. The uncertainties are either internal inceptions or originated from outside the business but pose a threat. Risk management process entail an identification of the uncertainty events, assessment of the possibility and extend of impact, implementation of mitigation measures by minimization, control and monitoring of the probability and severity of the risks’ effects.

Identification of the risks paves way for an assessment to establish the probability and severity of the risks. Prioritization of the uncertainties is done and this depends on how soon and often the risk can occur and the damage it may cause to the business. The composite risk index is one of the widely accepted forms of risk evaluation. It holds it that, the composite risks index is a function of the impact of risk event multiplied by the probability of occurrence.

The impact of the risk is evaluated in scales of 0 to 5 (whereby, 0 stand for minimum impact and 5 maximum impacts). Probability on the other hand is put in to indicator measurements of 0 to 5 (whereby, 0 corresponds to zero probability and 5 represents 100% possibility of the risk even to occur). From the tabulations, the composite index is calculated and it ranges from 0 to 25 (whereby, the figures are discretionary divided into low, medium and high risks).

Therefore, high indexed risks that have a high probability and more severity is accorded urgency in the risk planning and mitigation measures need to be put in place. The implementation process is vital as it determines how the business may apply the available resources in the most economical way to achieve results. There are mainly four implementation methods and these are; risk avoidance, reduction, sharing and retention. The adoption of each of the strategies is pre-defined by the composite index.

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