Risk Management Process

Risk management process

Risk Management Process

In the Risk management approaches, after the companies, specific risks are identified and the risk management process has been implemented, there are several different strategies companies can take in regard to different types of risk:

  • Risk avoidance. While the complete elimination of all risk is rarely possible, a risk avoidance strategy is designed to deflect as many threats as possible in order to avoid the costly and disruptive consequences of a damaging event.
  • Risk reduction. Companies are sometimes able to reduce the amount of damage certain risks can have on company processes. We achieve this by adjusting specific aspects of the overall project plan Or company process, or by reducing its scope.
  • Risk sharing. Sometimes, the consequences of risk are shared, or distributed among several of the project participants or business departments. We can also share the risks with a third party, such as a seller or a business partner.
  • Risk retaining. Sometimes, companies decide a risk is worth it from a business standpoint, and decide to keep the risk and deal with any potential fallout.

Certified Financial Risk Management Consultant - CFRMC®

Companies will often retain a certain level of risk if the project’s anticipated profit is greater than the costs of its potential risk.

Limitations

While risk management can be an extremely beneficial practice for organizations, its limitations should also consider. Many risk analysis techniques — such as creating a model or simulation — require gathering large amounts of data.

 

Extensive data collection can be costly and we cannot guarantee its reliability. Furthermore, the use of data in decision-making processes may have poor outcomes if simple indicators are used to reflect the much more complex realities of the situation.

Similarly, adopting a decision throughout the whole project that was intended for one small aspect can lead to unexpected results. Another limitation is the lack of analytical expertise and time.

So We have developed computer programs to simulate events that may have a negative impact on the company. While cost-effective, these complex programs require trained personnel with comprehensive skills and knowledge in order to accurately
understand the generated results.

Analyzing historical data to identify risks also requires highly trained personnel. So We may not always assign these individuals to the project.

Even if they are, there frequently is not enough time to gather all their findings, thus resulting in conflicts.
Other limitations include:

  • A false sense of stability. Value-at-risk measures focus on the past instead of the future. Therefore,
    the longer things go smoothly, the better the situation looks. Unfortunately, this makes a downturn
    more likely.
  • The illusion of control. Risk models can give organizations the false belief that they can quantify
    and regulate every potential risk. This may cause an organization to neglect the possibility of a novel
    or unexpected risks. Furthermore, there is no historical data for new products, so there is no
    experience to base models on.
  • Failure to see the big picture. It is difficult to see and understand the complete picture of cumulative
    risk.
  • Risk management is immature. An organization’s risk management policies are underdeveloped
    and lack the history to make accurate evaluations.