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Running head: RISK MANAGEMENT 1

Risk Management

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RISK MANAGEMENT 2

Risk Management

Organizations operate in environments which contain a myriad of risks which profoundly

affect their operations. Mostly, the extent of risk as businesses operate has been enormous since

the vulnerabilities’ have been increasing over time as well. Regarding that, it is risky to function

without being calculative due to the extent of damage that unplanned occurrences can cause in

different circumstances. The entire process of risk management involves coming up with

mechanisms that ensure that an organization can sufficiently cope with any potential danger.

Accordingly, even if risks occur, the impact is minimal.

In daily organizational affairs, the symmetry of risks takes different shapes according to

the needs of different times and situations. Typically, they involve wrong decision making. Here,

the management decides something such that the impacts adversely affect the regular running of

an enterprise (Bromiley et al., 2015). Therefore, it is justified to deduce that majority of the risks

are known and expected. The only issue that makes a difference is preparedness towards the

same. In fact, with many causes being human, it is evident that risks are not primarily natural or

occurring unexpectedly as some scenarios usually demonstrate.

Issues in decision making are a potential cause of risks, but there are others with similar

or higher impacts. For instance, catastrophes and related events that are beyond human control

can profoundly affect the way organizational processes take place. The other potential cause is

the natural occurrences that affect corporate procedures but highly uncontrollable. Here, issues

like wars affect the movement patterns of people and business processes significantly deviate

from the norm. Lack of adequate planning is also a form of risk (McShane, Nair, &

Rustambekov, 2011).

RISK MANAGEMENT 3

The types of risks that enterprises require to manage vary considerably. Some areas may

experience some or all risks depending on the activity type. Among the leading vulnerabilities,

changes around the market including competition and currency performance have far-reaching

effects. The other dimension involves strategic risk: this is more about the inability to account for

unforeseen events in the planning phase. According to McShane, Nair, and Rustambekov (2011),

organizations must also manage compliance risk which stems from changing legal requirements

and existing regulations. Change of policies is typical when governance structures change.

It is also worth mentioning that risk management's success depends on the alignment of

several steps that make the process more manageable. As Mikes (2011) illustrates, the initial

phase of risk management starts with risk identification. Accordingly, it is imperative to classify

the risks as internal or external. More so, projecting the possible outcomes is a highly

recommended consideration since it helps to acquire more specific information about the

situation. Analyzing the likelihood of the consequences is the second step, and summarizes the

nature of the risk. Indeed, having more information about it is beneficial since it helps to look for

a specific solution about the same.

The third step of the risk management process is ranking. With many risks taking place

concurrently, it is vital to evaluate not only the possible outcomes but their magnitude. In so

doing, the project risk manager specifies whether the condition is severe to warrant a response

(Mikes, 2011). The fourth step is the treatment process depending on the magnitude of the

danger. At this step, the ones responsible come up with mitigation strategies. The final step is

monitoring and evaluation, which involves tracking risk performance and effectiveness of

interventions (Mikes, 2011).

RISK MANAGEMENT 4

When an organization is aware of the possible risks, types, and steps in management, it is

crucial as well to have adequate information about the management techniques. In one way or

the other, various reasons make it impossible to deal with risks by using a single mechanism. As

a result, it is essential to understand how different strategies work and how they apply to

situations. Risk avoidance is a proven approach; here, the managers put the necessary measures

in place to ensure that the projected risk does not occur. More so, separation of risk is another

reliable method. In its application, there is no location of the valuable business possessions in

one place. As Mikes (2011) observes, diversification is also useful since different product or

service lines can support each other in times of crises.

The critical importance of risk management is that an organization remains aware of the

potential risks and puts in place effective intervention strategies. As a result, the extent of

damage significantly declines in case an eventuality takes place. Without risk management, there

is no doubt that organizations can find it hard to strategize for the future. The business plan will

be incomplete as it omits an essential part of the inclusion. The process is elemental for any

business and guarantees it a continuous success. Above all, it is a move towards a cost-effective

and proactive response to threats.

All in all, it is evident that risk management is an elemental part of the fundamental

business processes that require prioritization at all times. As detailed above, the process entails

not only being aware of how the business scenario is likely to change but also having the

adequate risk mitigation strategies in case there is an occurrence of any danger. Considering that

situations change and objectives vary, it is apparent that there is no standard way of risk

management. Strategies will always be specific to the situation with risk avoidance,

diversification, and separation mechanisms being the commonly used.

RISK MANAGEMENT 5

References

Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015). Enterprise risk management:

Review, critique, and research directions. Long range planning, 48(4), 265-276.

McShane, M. K., Nair, A., & Rustambekov, E. (2011). Does enterprise risk management

increase firm value?. Journal of Accounting, Auditing & Finance, 26(4), 641-658.

Mikes, A. (2011). From counting risk to making risk count: Boundary-work in risk

management. Accounting, organizations and society, 36(4-5), 226-245.

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