√ Definition of Risk Management, Purpose, Scope, Type & Process
Definition of Risk Management, Purpose, Scope, Type & Process – In this discussion we will explain about risk management. Which includes the definition of risk management, risk management objectives, risk management scope, types of risk management and risk management processes with complete and easy discussion understood. For more details, please see the review below carefully.
Definition of Risk Management, Purpose, Scope, Type & Process
Let's first discuss the meaning of risk management carefully.
Definition of Risk Management
Risk management is a structured approach or methodology in managing uncertainty associated with threats. Another definition of risk management is a series of human activities including risk assessment, developing strategies for managing and mitigating risks using empowerment or management resource.
The aim of risk management is to reduce the different risks associated with the chosen field at a level acceptable to society.
Risk Management Objectives
There are several risk management objectives, including the following:
- As a protector of the company from significant risks that could hinder the achievement of company goals.
- Providing a risk management framework that is consistent with risks in business processes and functions within the company.
- Encouraging management to act proactively to reduce the risk of loss, so that risk management is a source of competitive advantage and also the advantage of company performance.
- Encouragement of each company to act carefully in dealing with company risks, as an effort to maximize the value of the company.
- Building the ability to socialize an understanding of risk and the importance of managing risk
- Improving the company's performance by providing information on the level of risk that is described in a risk map (risk map). useful for management in developing strategies and improving the risk management process continuously and continuous
Scope of Risk Management
The scope of risk management is as follows:
- Determine the context of the activity to be managed risk
- Risk identity
- Risk analysis
- Risk evaluation
- Control risk
- Monitor and review
- Coordination and communication
Types of Risk Management
There are several types of risk management, including:
1. Reputation Risk
Reputation is the most important thing for a company. When a reputation falls, the destruction of a company is in sight. For example, there was a discovery case in a restaurant A where there were indications of the use of certain prohibited substances. If restaurant A has many branches, then "disabled in restaurant A" is often generalized by the public. This will damage the good name of all the A branch restaurants.
What top management can do for reputation risk recovery is:
- Acknowledge the danger
- Evaluation of the consequences of the risk
- Smooth allocation of resources to control damage
- Trying to regain the company's reputation and client's trust with various strategies
- Carry out further damage limitation procedures for the future.
2. Market Risk
Market risk is often related to changes in market prices that can be detrimental to a company. Such as a decrease in stock prices resulting in a decrease in the market value of the company's shares. This makes the company lose because the stock price moves in an unfavorable direction.
3. Credit Risk
Credit risk is common in companies that carry out sales schemes by credit. This risk can also affect companies engaged in financial institutions. This risk is an ancient danger caused by the inability to extract (loan and borrow) agreements in business partners. Companies must be able to do good debt management. And also must know the level of soundness of the company that will become its business partners, so that later it can be identified whether the company has the ability to pay its debts.
4. Operational Risk
Risks that occur due to the lack of functioning of an internal process, human error, system failure or there are external problems. This risk will cause losses which can result in loss of profit potential.
Risk Management Process
There are main elements of the risk management process, including:
Goal Setting
The first thing that must be done is to determine the strategy, organizational policies and scope of risk management that will be carried out.
Risk Identification
If you have set goals, then what must be done is to identify what, why and how the factors that influence the occurrence of risk for further analysis.
Risk Analysis
This risk analysis is carried out by determining the level of probability and the consequences that will occur occurs Then determine the level of risk that exists by multiplying the two variables (probability X consequence).
Risk Evaluation
Comparing the existing risk level with standard criteria. Then, the level of risk that exists for several hazards is made up of management priority levels. If the risk level is determined to be low, then the risk is included in the acceptable category and may only require monitoring, not having to carry out controls.
Risk control
Implement a degree of probability reduction and existing consequences using a variety of alternative methods, can be by transferring risks and so forth.
Monitors and Reviews
Monitor and review the results of the risk management system implemented to identify changes that must be made.
Communication and Consulting
This communication and consultation is carried out by making internal and external decisions for the follow-up of the results of the risk management carried out.
Thus has been explained about Definition of Risk Management, Purpose, Scope, Type & Process, hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.
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