Speaker 1: In this video, you are going to learn Risk Management. Topics I have discussed in this video are What is Risk Management? Risk Management Process, Risk Management Approaches, Types of Risk Management, Importance of Risk Management, and Limitations of Risk Management. Let's start the video. Before learning about risk management, first we should know what the risk is. In every business, from the small corner store to the large manufacturer, there are common challenges with insurance, claims, and risk in general. Fire can damage buildings, someone could slip and fall, vehicle accidents often occur, or losses can occur as a result of defective products. A good sense of risk in its different forms can help investors to better figure out the opportunities, trade-offs, and costs associated with different investment approaches. In the financial world, risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes, and attempts to quantify the potential for losses in an investment, and then takes the appropriate action given the fund's investment targets and risk tolerance. Risk Management Process There are five necessary steps that are taken to manage risk, we consider these steps as the risk management process, it begins with identifying risks, evaluates risks, then the risk is prioritized, a solution is implemented, and finally, the risk is controlled. Let's discuss each step separately. 1. Identify the Risk The first step of risk management is to identify the risks that the business is discovered to in its operating environment, there are many types of risks, including legal risks, environmental risks, market risks, regulatory risks, and much more. It is important to identify as many of these risk factors as possible. If the organization has employed a risk management solution, all this information is included directly in the system. The advantage of this strategy is that these risks are now transparent to every stakeholder in the organization with access to the system. 2. Analyze the Risk Once your team identifies potential problems, it's time to go a little deeper. How likely are these risks to take place? And if they take place, what will the consequences be? During this step, your team will examine the probability and fallout of each risk, to choose where to focus first. Factors such as possible financial loss to the organization, time lost, and severity of impact all play a part in precisely analyzing each risk. 3. Prioritize the Risk After analyzing the risks, prioritization begins. Rank each risk by factoring in both its possibility of happening, and its potential impact on the project. This step gives you a comprehensive view of the project at hand, and pinpoints where the team's focus should lie. It'll help you identify useful solutions for each risk. This way, the project itself is not interrupted in ways during the treatment stage. 4. Treat the Risk After prioritizing the risks, develop your treatment plan. While you can't expect every risk, you should have set up the previous steps for the success of your risk management process. Starting with the highest priority risk first, task your team with either solving or at least reducing the risk so that it's no longer a risk to the project. Effectively treating and modifying the risk also means using your team's resources properly without hampering the project in the meantime. As time goes on, and you develop a larger database of past projects and their risk logs, you can expect potential risks for a more proactive rather than reactive approach for more efficient treatment. 5. Monitor the Risk Transparent communication among your team and stakeholders is crucial for the ongoing monitoring of potential threats. Risks need to be continuously monitored to make sure that risk mitigation plans are working, or to keep you aware if a risk becomes a greater threat. Let's discuss some risk management approaches. After the company's exact risks are found, and the risk management process has been applied, there are several strategies companies can take to treating different risk. First approach is risk avoidance. Risk avoidance involves stopping and avoiding any activities that could lead to a risk. Risk reduction. Risk reduction is focused on actions that will reduce the probability of a risk occurring or the impact of a risk. This is done by adjusting particular aspects of an overall project plan or organizational process, or by scaling down its scope. Risk sharing. Risk sharing is when an organization will transfer or share part of the risk with another organization. An example is outsourcing manufacturing or customer service functions to a third party. Risk retention. Risk retention occurs when risks have been evaluated, and the organization decides to accept the potential risk. No action is taken to decrease the risk, but a contingency plan may still be put in place. Types of risk management. Widely, risks can be classified into three types, business risk, non-business risk, and financial risk. Business risk. Business enterprises take these types of risks themselves in order to increase shareholder values and profits. For example, companies offer high-cost risks in marketing to introduce a new product, in order to gain higher sales. Non-business risk. These types of risks are not under the control of firms. We can term risks that arise out of political and economic imbalances as non-business risk. Financial risk. Financial risk as the term refers to the risk that includes a financial loss to the firms. Financial risk arises because of instability and losses in the financial market caused by movements in stock prices, currencies, interest rates, and more. Importance of risk management. To highlight the importance of risk, here are some reasons all employees should care about risk management. 1. Everyone should manage risk. As most business people know well, sometimes the risk is necessary in order to achieve success. The purpose of risk management is not to wipe out all risks, it is to decrease the negative consequence of risks. By working with risk managers, employees can make smart decisions to prevent risks and improve the chance of being rewarded. 2. Makes jobs safer. Health and safety are integral parts of a risk manager's role. They use data analysis to identify damages and injury trends, then implement strategies to stop them from occurring again. This benefits employees in physical work environments, such as construction. 3. Enables project success. Risk managers help employees from all departments succeed with their projects. Just they have to evaluate risks and implement strategies to maximize organizational success. It can also apply to individual projects. If something goes wrong, there will already be a strategy in place to handle it. 4. Reduces unexpected events. Most people don't like surprises, specifically when it has an organizational impact. A risk manager's goal is to find out all possible risks and then work to prevent them. It's impossible to figure out every risk scenario and address them all, but a risk manager makes unpleasant surprises less likely and serious. 5. Guides decision making. Decision making is a difficult process, especially when making important choices that will have a large impact on future progress. Risk management data and analytics can guide employees in making wise strategic decisions that will help to fulfill organizational objectives. Let's move on to the limitations of risk management. 1. Adopting a decision throughout the entire project that was intended for one minor risk aspect can lead to unexpected results. 2. Analyzing past data to identify risks requires highly trained people. These individuals may not always be elected to the project. 3. Risk models can provide organizations with the false belief that they can assess and regulate every possible risk. This may cause an organization to ignore the possibility of novel or unpredictable risks. 4. Create a fake sense of stability. Value at risk measures focus on the past instead of the future. Therefore, the longer things go smoothly, no matter how better the situation looks. Unfortunately, this makes a downturn more likely. If you want to read in details or download the PDF. Go through the link in the description. 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