Risk management can be defined as the process of making decisions in an environment of uncertainty with respect to an action that is going to occur and to the consequences that will exist if this action does occur.
Success in business requires excellence in risk management. For this reason, entrepreneurs need to be “intelligent” in the management of risk.
An entrepreneur must be aware of the risk, distinguish the different kinds of risk in order to learn how to mitigate then or to minimize their effects and optimize the resources used in management; all of this forms a part of the intelligence of business management.
The Risk Management Process:
The management of risks is an essential part of the strategic management required of an entrepreneur.
Its objective is to add as much value as possible to all of the company’s activities in a sustained manner.
For this purpose, it introduces a common vision of the positive aspects, opportunities, and of the negative aspects, threats, that could affect the business project, increasing the likelihood of success and reducing the likelihood of failure, as well as the uncertainty of achieving the entrepreneur’s objectives.
The different environments in which risks can arise must first be determined, in order to then proceed to undertake a systematic identification, analysis and treatment of such risks.
Characteristics of Risk Management:
All of the risks that surround past, present and, above all, future business activities should be dealt with methodically.
Risk management should be integrated into the company’s culture.
The entrepreneur must convert strategy into operational targets, by assigning responsibilities throughout the company, with each manager and each employee being responsible for risk management as a part of their job description.
Risk management favors the measurement and reward of output in light of targets, thus promoting staff efficiency.
Advantages of Risk Management:
• Risk management improves the decision-making process and planning
• Offers the
• Efficient assignment of financial and operating resources within the organization
• Supports the employees and improves the organization’s knowledge base
• Protects and enhance the company’s assets and image
• Develops a structure that enables future activities to be carried out in a controlled manner.