Risk management defines the overall activity of pre-calculating data and information’s to predict the certainties of occurring a risk and designing a contingency plan to cover the loss, if the damage occurs. Risk management is one of the vital activity to ensure long term continuity of a business entity. Normally risk management includes the activity of removing the possibility of the risk occurring by the threat, transferring the threat to a third party management, or ensuring a financial backup to ensure that the business goes on as planned. As business world is getting competitive each and every day, all sorts of business entities should have a quality risk management facility to ensure their businesses long term sustainability.
A company has to go through certain methods for ensuring best quality risk management. Here they are in a sequential manner:
- Identify the threat: The first step to risk management is to identify the threat. Depending on the types of business you are in you need to identify at least three level of threats before going for the assessment part next.
- Assessing the threat: As you have found out the major threats, now you have to assess the threats to find out its strength to do damage to your business and you also need to assess the critical aspects of the threat for narrow down the threats to the minimum.
- Determining the risk: After the assessment part, risk management should focus on narrowing the risk down to only the ones that has the potential to take the business down. Doing so, will also help the company to use its resources in a perfect manner.
- Risk reduction: After the calculation and assessment part, a company has to come up with plans which helps them to reduce the probability of risk by evaluating different opportunity costs and ensuring backup infrastructure.
- Prioritizing and implementation: After the planning is done, the company then needs to prioritize the phases of risk management to implement the program on a sequential manner.
- Review and develop: A risk management plan should be done on a long term basis. Doing so, helps a company to try the effectiveness of the plan and develop it as needed.
Risk management costs both money and time of the company. So, it is highly recommended to go for a business friendly risk management plan for the long term betterment of the company.