Overview of Risk Management , What is Risk Management , Risk Management Process .

What is Risk
A risk is a potential problem – it might happen and it might not
Conceptual definition of risk

• Risk concerns future happenings
• Risk involves change in mind, opinion, actions, places, etc.
• Risk involves choice and the uncertainty that choice entails

Two characteristics of risk
Uncertainty – the risk may or  may not happen, that is, there are no 100% risks (those, instead, are called constraints)
Loss – the risk becomes a reality and unwanted consequences or losses occur

Why Take a Risk 
There are essentially two reasons why people take risk
• Inevitability
• Reward
Some risks are simply unavoidable they have to be taken in order to achieve goals or perform a task. As for avoidable risk they are taken because they are for rewards.
Risk Aversion

• It Refers to individual person or company’s attitude towards risk 
• Some People are willing to take risk and other are not.
• Risk averse people are willing to pay to reduce their exposure to risk  

Risk Exposure 
If you face a particular type of risk because of your job the nature of your business or your pattern of consumption , you are said to have a particular risk exposure.
Risk Facing firms 
Virtually every activity of a company involve exposure to risk.
Taking risk is a essential and inseparable part of business enterprise.
Business risk of a company are born by shareholders, stakeholders, creditors, employers, customers and Govt.
Some risk on behalf of companies are given 

• • Production /operational risk 
• • Price risk of output / market risk 
• • Price risk of inputs 
• • Economic condition risk 
• • Political risk 
• • Environmental risk 
• • Project risk 
• • Reputational risk 

Responsibility for Managing the risks

• Risk is Responsibility of BOD’s 
• Risk management is very much a Governance issue 
• Actual process carried by management 
• The size and form of the company may also be a risk 

Risk management process 
A systematic attempt to analyze and deal with risk is Risk management process
Total process of Risk management can be divided into five simple steps

• • Risk identification 
• • Risk assessment 
• • Selection of risk management techniques 
• • Implementation 
• • Review 

Risk Identification 
Risk identification is a systematic attempt to specify threats to the project plan
By identifying known and predictable risks, the project manager takes a first step toward avoiding them when possible and controlling them when necessary

Risk Assesment 
Risk assessment is basically the evaluation of the identified risk
Risk assessment will involve finding answers to the following questions?

• • How likely is it for these risk to happen ?
• • What is the maximum possible financial loss that will suffer in listed situation ?
• • What would be the cost of eliminating or transferring this risk to someone else? 

Selection of Risk Management Techniques 
There are four basic techniques available for reducing risk

• • Risk avoidance
• • Loss prevention and controlling 
• • Risk Retention
• • Risk transfer   

Implementation Of Risk Management Plan 

• Decisions about how to handle identified risks
• One technique must be selected
• Risk management process is to minimize the cost of implementation 
• Must Draw the implementation Plan 

Review of Risk Situation 
Risk management is a dynamic “feedback” process in which decisions are periodically reviewed and revised.
As time passes circumstances change, new exposure may arises and information about the likelihood and  cruelty of risk more rapidly available and techniques for managing them may become less costly .
Risk transfer Techniques

• • Hedging 
• • Options 
• • Insuring 
• • Diversifying 

Institution for Risk Management 
Possible Institutions for Risk Management

• • Insurance Companies 
• • Stock Exchange 
• • Mutual Funds 
• • Financial Institutions offering guarantees 
• • Bonds, underwriting of shares, similar facilites 

The Role of Government in Risk Management 
Government plays an important role in the managing risk for the public at large either by preventing them.
In case of private sector institutions of risk management , the person seeking cover against a risk pay for the coverage in one form or other .

Complete Risk Management Articles will Be Posted soon