Risk Management process- Comparison with Individuals and Corporate Entities:Literally speaking, risk management is the process of minimizing or mitigating the risk. It starts with the identification and evaluation of risk followed by optimal use of resources to monitor and minimize the same.Risk generally results from uncertainty. In organizations this risk can come from uncertainty in the market place (demand, supply and Stock market), failure of projects, accidents, natural disasters etc. There are different tools to deal with the same depending upon the kind of risk.Ideally in risk management, a risk prioritization process is followed in which those risks that pose the threat of great loss and have great probability of occurrence are dealt with first. Refer to table below: | | IMPACT | ACTIONS | SIGNIFICANT | Considerable Management Required | Must Manage and Monitor Risks | Extensive Management essential | MODERATE | Risk are bearable to certain extent | Management effort worthwhile | Management effort required | MINOR | Accept Risks | Accept but monitor Risks | Manage and Monitor Risks | | LOW | MEDIUM | HIGH | | LIKELIHOOD |
The above chart can be used to strategize in various situations. The two factors that govern the action required are the probability of occurrence and the impact of the risk. For example a condition where the impact is minor and the probability of occurrence is low, it is better to accept the risk without any interventions. A condition where the likelihood is high and the impact is significant, extensive management is required. This is how a certain priority can be established in dealing with the risk.Apart from this, typically most of the organizations follow a risk management cycle. Refer diagram below:According to this cycle there are four steps in the process of risk management. The first step is the assessment of risk,