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Running head: RISK MANAGEMENT

RISK MANAGEMENT

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RISK MANAGEMENT 2

RISK MANAGEMENT

Flanagan and Norman in 2014 defined risk management as the process of identifying,

evaluating and regulating threats to an organization's resources and revenue. Risk arises from

many factors such as natural disasters, human-made accidents, financial ambiguities and

calculated management errors. They have to be dealt with effectively to reduce further

widespread losses in an organization. Risk management involves several stages which have both

benefits and challenges.

Stages of risk management

Identification of the risk: This process helps to discover, determine and characterize risks

that are likely to affect the project of an organization and their possible outcomes (Kendrick,

2003). It, therefore, promotes an organization to tackle risks as soon as they occur. Thus, making

the organization more prepared and equipped with identifying risks at early stages, which

facilitates risk mitigation strategies. Through documentation of existing risks, an organization

can prevent it from occurring again.

Analyzing the risk: After risk identification, the organization narrows down to the impact

of each risk. This process helps an organization to understand the temperament of a risk and its

possibility of interfering with the goals and objectives of an ongoing project.

Evaluation of the risk: In this stage, the risk is evaluated and ranked depending on its

momentousness. A decision is made determining whether the risk has severe consequences for

the organization or whether it can be dealt with easily. It helps the organization to prepare in

advance and know how to deal with all types of risks.

RISK MANAGEMENT 3

The Risk response stage: This step allows an organization to evaluate risks of higher

magnitude and come up with a plan for solving them to achieve manageable risk levels. The

measure is achieved through the creation of countermeasure plans, emergency plans, and risk

mitigation strategies. These actions prevent an organization from suffering adversely from the

effects of these risks.

Monitoring and reviewing of the risk: This step involves keeping track of the solutions

provided to solve a risk. It provides the organization with the assurance that the risk will not

occur again. In other words, this step helps them to keep track of their progress.

Benefits of risk management

Risk management leads to a decrease in business liability. Most stockholders and

regulators perceive litigation risks as a form of business liability. Therefore, when these risks are

reduced, an organization has a higher chance of attracting more investment opportunities

(Coleman, 2012). Risk management helps an organization to maintain its reputation. When an

industry can control its risk occurrence rate, its reputation is likely to be maintained. In

consequence, it gains more consumers. If a company is exposed to uncontrolled risks, it may

either incur losses or collapse.

Risk management helps a business to identify all types of risk including the ones that are

not apparent. It gives a comprehensive analysis of all the risks an organization is likely to

encounter. Moreover, it provides a detailed risk management program that provides experts with

the opportunity of gaining more in-depth insights on how all types of risk may occur and how

they will mitigate them.

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Challenges facing risk management

Risk management strategies focus mainly on solving risks that have higher magnitudes at

the expense of minor risks. This practice may become very dangerous, especially in cases where

these small risks develop into major risks after a period. Mitigation risk strategies should focus

on all types of risks whether big or small (Hubbard, 2009). At times, risk experts do not involve

all stakeholders in the development of risk management strategies. Consequently, causing

disagreements in the organization especially when these strategies fail. An effective risk

management strategy should include everyone in the organization.

In conclusion, from the illustrations above, it is imperative to implement risk

management strategies in the efficient running of an organization. These strategies will protect it

from suffering adversely from unplanned risks. Risk management strategies, therefore,

contribute to the sustainability of a company.

RISK MANAGEMENT 5

References

Coleman. S.,T., (2012). Quantitative Risk Management: A Practical Guide to Financial Risk.

Hoboken, New Jersey: Wiley Publishers.

Flanagan, R. & Norman, G. (2014). Risk Management and Construction, Cambridge, MA: Royal

The institution of Chartered Surveyors, Blackwell Science Ltd.

Hubbard. W. D., (2009). The Failure of Risk Management: Why It’s Broken and How to fix

It. Hoboken, New Jersey: Wiley Publishers

Kendrick. T., (2003). Identifying and Managing Project Risk. United States, US: American

Management Association Press.

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