the risk management essay

the risk management essay

Effective Risk Management Strategies in Modern Business Operations

1. Introduction to Risk Management

Enterprise risk management involves the movement of the focus from protecting against risk to optimizing the risk-return trade-off. Traditional loss control strategies, such as buying sufficient insurance, are becoming progressively less effective. Deregulation has expanded the list of permitted financial activities, thus increasing the number of connections among banks and of the means to fail. Yet the available portfolio models are designed to analyze connections which stem from incentives (throughward agreements, underwriting of the riskier stock, or employment of riskier managers). A number of innovative techniques are in operation. Banks can now trade off discretion with benchmarking by linking performance-related contracts for key financial service executives to multi-period accounting-based financial targets to the equity price. However, despite popular claims to the contrary, these contracts do not eliminate the conflict between debt capacity and CEO incentives.

In today’s business environment, the complexity of financial products and the pressure to boost short-term profits generates ever-increasing risks. However, the available risk management techniques remain relatively unsophisticated and offer at most an ad hoc snapshot of the risk that a firm is facing. The purpose of this research is indeed to present a comprehensive dynamic risk management model. Modern risk management should not only fuel the real-time alerts which are currently the most common symptoms of the potential risk of loss but should also offer pointers about the direction, significance, and speed of any corrective measures.

2. Key Concepts and Principles in Risk Management

Risk management is undertaken to identify potential risks, analyze and synthesize various dimensions of such risks, and propose risk intervention techniques to evolve risk strategies to suit business objectives. Risk management results in increased overall business efficiency, which is necessary for achieving long-term improved performance. Sound performative business operations adopt risk management strategies to ensure a business’s survival and long-term growth. Such businesses adopt a toolset that equips them to regularly review business activities, investigate potential risks, implement investigation measures or intervention tools to handle or control risk, and adopt techniques that provide timely and valuable returns to the organization. Sound risk management techniques diminish business distresses and are key to preserving customer satisfaction and loyalty. Successful business operations seek to attain different levels of risk management response capabilities and formulate effective counter-risk strategies to manage different types of business crises on a continuous basis.

The business environment is highly integrated and characterized by rapid developments in technology, intense competition, dynamic and fast shifting consumer needs and preferences, changes in legislation, and increasing demand from investors for enhanced financial performance. These trends occasion business risks and vulnerabilities. The task for management is to implement effective and efficient risk management strategies to mitigate the potential impacts of risks as much as possible. However, addressing risks to steer the business towards achieving intentions is a full-time management function and cannot be overshadowed. Instead of activities like production, it requires classical risk management strategies whose sole goal is to establish and maintain procedures that would provide short-term and long-term survival for the business.

3. Common Types of Risks in Business Operations

The following are a few of the categories of risks common to both manufacturing and service operations: manpower, material, machines, methods, models, and disaster. The appropriate insurance to cover these risks tends to be relatively inexpensive. Unfortunately, post-disaster cleaning and repair may be necessary if such low risks are not properly anticipated and the recommended coverage purchased. As the highly automated, specialized systems continue to increase in physical size and monetary worth, the problem of common natural forces in manufacturing and service operations becomes more important and will receive more attention from management.

Manufacturing and service operations together generate business outputs by creating output products. Each category of risk is potentially applicable to most types of businesses. A few categories of businesses such as banking, insurance, transportation, and mining might encounter greater exposure to a particular type of risk. Manufacturing and service operations encounter a fairly strong mixture of risk types. Similar to the blending of technology across industries in today’s broader spectrum of information systems and procedures, there is a blending of risk types common to many types of business operations. Later, IT systems will be developed to aid management development of efficient, adaptable risk programs for various blends of common risk types. Just as proper cleaning and maintenance of an information system can assure optimization of information system functions, proper business planning can provide valuable input for proper consideration of risk types.

4. Strategies and Techniques for Identifying and Assessing Risks

The 4 main scenarios of actual organizations include the most likely, worst, best, and limited availability curve. The main hurry of such models is necessary for models of resources due to the daily transactions of a firm ranging from forecasting budget till communication about future applicants. Insurers should be proactive along their effect geared up toward fully mistake-free, fast, and cheaper in adopting the actuarial developed regarding economic aspects. For example, computer crime and credit and operational risk solutions. As a part of formal processes, clients of the insurance can be settled or rejected. The risk assessment is commenced, refined, and expanded. Measure of underwritten risks are assessed. Risk is profitable related to other alternatives. The risk decision is alive, priced, and converted into personal packages and tailored from the availability of the portfolio. In cases where risk cannot be taken, risk will be wanted fully executed tactic, ahead of schedule all decided during the underwriting phase. All risk decision processes should include the possible probability of profitable commitments being encared. Tailored oral or written communication to the key stakeholders running along the underwriting development cycle.

Techniques of identifying risks involve a number of methods, various tools, and applicable standards, and involve potentiality to both industry and sophistication. The choice of technology to use mainly depends on the analyses being valid. Organizations that require insurability of important risks like natural disasters and other catastrophic perils should stress types of risks on small losses, those with a significant contribution to the world. Risk lasting measures should center on market reputation and investor exceptional value. The most important risk a company should neither avoid nor cover through insurance are demanding monitoring along with high caliber data monitoring since risk transfer services may not be existent. Organizations should also contain a portfolio of expected sources which are also called subjective or informal models. These can be company few standards and rules along special experience. The company should also be confident in their technique can take both single option related curves through options and relate to implicit decisions with curves option adjusting simple models.

5. Best Practices in Implementing Risk Management Frameworks

Internal audit is an integral part of the assurance arrangement of the risk management model, which is mandated to provide additional assurance and advice. A risk focus should be embedded into corporate strategic, budget, and business planning cycles. Appropriate oversight of the risk management processes, by the governing body, should be built into the annual planning cycle. Well-implemented risk management processes enhance organizational performance. The framework helps ensure that staff at all levels recognize the benefits and contribute to establishing the risk-based approach to decision-making across the organization.

The robustness of an organization’s risk management framework needs to be maintained over time, particularly as it can be impacted by changes in the composition of staff, competing management focus, and accumulation of dispersed changes in the organization’s overall environment. To ensure longevity and effectiveness of the framework, organizational culture and mindset need to be addressed as a fundamental precursor. Risk management practices can be implemented in a variety of ways. Only about two-thirds of organizations have an underlying framework for managing risk. Other organizations rely on elements of the risk management process being incorporated into existing corporate governance procedures and internal administrative measures.