The Concepts and Practices of Risk Management

The purpose of this article is to present the concept and practice of enterprise risk management with the aim of providing the benefits a company can derive from it. The ideas, the frame, and its implementation will be explained. If nothing else, it would be smart to contact Cane Bay Partners to learn more details.

Defining risk management

According to experts, risk management is described as a process implemented by a board of directors, the general management, and all the employees of the organization. It considers the developmental strategy as well as all other activities of a business. It is designed to identify potential events that may affect the organization and manage risks within the limits of its risk appetite.

Risk management is intended to provide reasonable assurance as to the achievement of the objectives of a company. It is a rigorous approach to the assessment and identification of all risks that threaten the result of an organization’s strategic goals and involves all members of the organization at all levels. This global approach to risks is perceptible across the categories of objectives pursued by enterprise risk management, namely: strategic aims, operational objectives, reporting, and compliance.

Managing risk also aims to link the objectives to the different categories, thus allowing management to focus on the various aspects of organizational risks and no longer on a single type of risks as in the traditional approach.

The nature of a risk and the traditional approaches to lower it

For a long time, the entrepreneur was defined as the one who took risks, the one who risked his or her capital and who was compensated for it. Many experts have warned people against attempts to eliminate risks. According to them, trying to eliminate risks, even trying to reduce them, can lead to the greatest of all risks: inflexibility.

Risk management defines managerial decisions as risk-taking decisions and even suggests that each innovative strategy is based on an apparent acceptance of the risks of failure. This is an awareness that risks are inherent in any business. This also justifies the underwriting of insurance policies by companies to cover against losses that could be caused by fires, theft, floods, earthquakes, in particular.