Risk Management Defined:
Risk management refers to the identification, assessment of a risk in regards to an investment purchase or the productive procedures of a business entity. The process of analyzing risk is undertaken to minimize damage and the subsequent costs of repairing or replacing such damages in the future. In essence, risk management is simply a practice of systematically seeking cost effective approaches for minimizing the overall effect of a problem to the organization. Because all threats of risk can never be fully avoided or accounted for, risk management simply aims at mitigating such situations. The procedure is preemptive in nature, but also analytical; the process of risk management will not only point out and subsequently evaluate all threats of a business, but will create a detailed resolution process to limit the damages realized.
Risk management is a critical process undertaken by all companies in the United States to prevent cataclysmic events from completely destroying the company’s business model. As stated before, all companies, regardless of industry face numerous risks. From manufacturing problems to transportation crashes or building collapses, a business is susceptible to not only liability issues but post-disaster problems.
What is Enterprise Risk Management?
Enterprise risk management, in business, includes a number of methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their particular objective and business plan. Enterprise risk management provides a basic framework for risk management, which will typically involve identifying particular events or circumstances relevant to the company’s risks and opportunities. Furthermore, the process will also assess these objectives and risks in terms of likelihood and subsequently state the magnitude of impact. Once this evaluation has been affirmed, the enterprise risk management process will determine an appropriate response strategy—one the will mitigate the damages associated with the problem—and monitor the progress of such an effort. By identifying and addressing a company’s risks and opportunities, the business protects itself against cataclysmic destruction, which in turn, creates added value for stakeholders, employees, customers, regulators and society in general.
Enterprise risk management can also be utilized as a risk-based approach to managing a business that integrates various concepts of internal control and strategic planning. The Enterprise risk management process, as a result of its importance and success, is continuously evolving to more effectively meet the needs of various stakeholders, who wish to comprehend the broad spectrum of risks that organizations face. These stakeholders, in order to maintain confidence and their particular investment or deliver of service to the organization, must be comfortable and understand how such problems are managed by the underlying business organization.