Meaning and Importance of Risk Management | Global Risk Management Institute

What is Risk Management? Why is it so important?

 

Risk Management is a common term in the corporate and non-corporate world currently. You must have heard about it numerous times or have read multiple news, articles on how is it becoming so important and why every other organization is focusing on this particular aspect to run their company. Let’s find out all about it in the following article.

 

 

By Purnima Singh

PGDRM Batch Jan’21-22

 

It is humanly impossible to rule out risk from anything we do as it is an inherent part of our existence. On a daily basis, each one of us manage risks. Within the last few years, we have seen the attacks of 9/11, Global financial crisis, now it’s the pandemic. Extraordinary events have become a norm. If not for effective risk management our personal and professional performance along with our objectives would be at stake. 

So let’s see what Risk Management entails from an organizational perspective.  

 

Meaning of Risk Management

 

Any factor or event that creates uncertainty in achieving organizational objectives is “risk”. These risks can be in the form of financial uncertainty, strategic oversight, legal liabilities, IT and data-related threats, or natural disasters. Risk management is the process of identifying, analyzing, and responding to risk factors that may hinder organizational objectives. It helps in calculating the uncertainties and also predict their impact, consequently giving organizations a basis upon which they can make decisions. It prepares the organization for the unexpected by mitigating or minimizing the impacts of risk even before it occurs by acting proactively rather than reactively.  

 

 

Importance of Risk Management

 

No individual can predict risks accurately in this dynamic environment, but organizations need to prepare for an uncertain and volatile future. Organizations are becoming ever so cautious about learning from past mistakes. The scope of legality is increasing owing to business practices such as globalization. Consumers are becoming aware and learned posing threat for businesses not adapting accordingly. 

  • Implementation of a robust risk management plan will help an organization build policies and procedures around avoiding potential threats and measures to minimize their impact if it occurs.
  • It is crucial for any business to know the nature and extent of risk it is prepared to take the level of risk it can tolerate and communicate the same to its employees at all levels of management. This enables limited control all over the organization.
  • The ability to understand risks enables the organization to make confident business decisions.
  • It protects the organization from the risk of unexpected events that can cause it a financial and reputational loss.
  • Planning and developing structures to address potential threats improves the odds of becoming a successful organization.

Thus the practice of risk intelligence and risk management is seen increasing in many industries. 

 

The Global Risks Report 2021 by World Economic Forum

 

 

 

 

Read: WHY DO ORGANIZATIONS NEED RISK PROFESSIONALS

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