Risk Management in Business

ISSN 2349-7807
International Journal of Recent Research in Commerce Economics and Management (IJRRCEM)
Vol. 2, Issue 1, pp: (45-47), Month: January - March 2015, Available at: www.paperpublications.org
Page | 45
Paper Publications
Risk Management in Business
1
M.THAMILARASI, 2
Dr. M. THIRUMAGAL VIJAYA
1
Research Scholar, Department of Commerce, PSG College of Arts and Science, Coimbatore 641 014, India
2
M.Com, M. Phil, M.B.A., PGDCA., PhD, Head, Department of Commerce, PSG College of Arts and Science,
Coimbatore 641 014, India
Abstract: Risk management is an activity which integrates recognition of risk, risk assessment, developing
strategies to manage it, and mitigation of risk using managerial resources. Some traditional risk managements are
focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death). Financial
risk management, on the other hand, focuses on risks that can be managed using traded financial instruments.
Objective of risk management is to reduce different risks related to a pre-selected domain to an acceptable. It may
refer to numerous types of threats caused by environment, technology, humans, organizations and politics. The
paper describes the different steps in the risk management process which methods are used in the different steps,
and provides some examples for risk and safety management.
Keywords: Risk Management, Risk Management Process, Internet Age, Finance risk.
1. INTRODUCTION
Risk is unavoidable and present in every human situation. It is present in daily lives, public and private sector
organizations. Depending on the context (insurance, stakeholder, technical causes), there are many accepted definitions of
risk in use. The common concept in all definitions is uncertainty of outcomes. Where they differ is in how they
characterize outcomes. Some describe risk as having only adverse consequences, while others are neutral. One description
of risk is the following: risk refers to the uncertainty that surrounds future events and outcomes. It is the expression of the
likelihood and impact of an event with the potential to influence the achievement of an organization's objectives.
In the world of finance, risk management refers to the practice of identifying potential risks in advance, analyzing them
and taking precautionary steps to reduce/curb the risk.
When an entity makes an investment decision, it exposes itself to a number of financial risks. The quantum of such risks
depends on the type of financial instrument. These financial risks might be in the form of high inflation, volatility in
capital markets, recession, bankruptcy, etc.
So, in order to minimize and control the exposure of investment to such risks, fund managers and investors practice risk
management. Different levels of risk come attached with different categories of asset classes.
2. THE IMPORTANCE OF RISK MANAGEMENT IN BUSINESS
One term that has become synonymous with doing business in any industry is risk management. It’s really not enough to
just open our doors and start operations without thinking ahead. Elements of risk are everywhere and when they are
identified before they become an issue, it’s far easier to come up with viable solutions. Keep reading to learn more about
this critical business topic.
What is Risk Management? Basically, risk management refers to identifying, assessing and taking economic control of
various business risks. Risk management uses a variety of different tools to provide realistic solutions, and employees
from several different levels of an organization may be involved. Some risks are easy to predict, while others are
completely unpredictable and beyond anyone’s control.

ISSN 2349-7807
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Paper Publications
Why is Risk Management Becoming More Important? The practice of risk intelligence and risk management is becoming
more of an Customers are more issue and more important in many industries because: Insurance coverage The public is
more critical prone to litigation Legislation is more strict and extensive isn’t as comprehensive Management is more
cautious after learning from past mistakes
Key Risks All Businesses Face All businesses face risks that are unique to them and risks that are the same. Here are five
that all businesses must deal with:
1) Development risk
2) Manufacturing and operations risk
3) Sales and marketing risk
4) Profit and loss risk
5) Future growth risk
3. QUALITIES OF A GOOD RISK MANAGEMENT PROGRAM
Every good risk management program has similar traits and qualities. Here are five that all good programs share:
1) The program is inclusive - it doesn’t rely on just one person or group inside the business to succeed.
2) Approved by senior management - the active support of senior management will improve the likelihood of success.
3) Transparency - a risk management program works best when then the goals, process and results are shared with
stakeholders.
4) Proactive - the program should include processes that take advantage of opportunities presented by variable risk.
5) Complete - A good system addresses how risk affects the company as a whole, it doesn’t just identify which ones are a
threat.
4. CHALLENGES ABOUND
Whatever the potential benefits of a strong risk management program, many organizations see plenty of challenges to
implementing one. The biggest risk management challenge is as expected, will be obtaining adequate resources, namely,
time, budget and people. New risks will be introduced through the development of new products, the introduction of new
technology, and changes attributable to merger and acquisition activity. When leadership does not embrace a culture of
risk management, risk improvement initiatives can be doomed from the outset.
Companies need to make sure they develop risk management programs that work. Besides addressing both variable and
downside risks on an enterprise wide basis, programs are needed that should incorporate systems and processes for
preventing, not just insuring against common risk factors. Insuring against the downside impact of risk factors should be a
company’s last and not first line of defence.
5. STEPS IN THE RISK MANAGEMENT PROCESS
According to C. Arthur Williams Jr. and Richard M. Hein’s in their book Risk Management and Insurance, the risk
management process typically includes six steps. These steps are:
1. determining the objectives of the organization,
2. identifying exposures to loss,
3. measuring those same exposures,
4. selecting alternatives,
5. implementing a solution, and
6. Monitoring the results.

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Paper Publications
The primary objective of an organization, growth, for example will determine its strategy for managing various risks.
Identification and measurement of risks are relatively straightforward concepts. An Earthquake may be identified as a
potential exposure to loss, for example, but if the exposed facility is in New York the probability of an earthquake is slight
and it will have a low priority as a risk to be managed.
Businesses have several alternatives for the management of risk, including avoiding, assuming, reducing, or transferring
the risks. Avoiding risks, or loss prevention, involves taking steps to prevent a loss from occurring, via such methods as
employee safety training. As another example, a pharmaceutical company may decide not to market a drug because of the
potential liability.
6. RISK MANAGEMENT IN THE INTERNET AGE
Small businesses encounter a number of risks when they use the Internet to establish and maintain relationships with their
customers or suppliers. Increased reliance on the Internet demands that small business owners decide how much risk to
accept and implement security systems to manage the risk associated with online business activities. "The advent of the
Internet has provided for a totally changed communications landscape.
Conducting business online exposes a company to a wide range of potential risks, including liability due to infringement
on copyrights, patents, or trademarks, charges of defamation due to statements made on a Web site or via e mail, charges
of invasion of privacy due to unauthorized use of personal information or excessive monitoring of employee
communications, liability for harassment due to employee behaviour online, and legal issues due to accidental
noncompliance with foreign laws.
7. CONCLUSION
Risk management is, at present, implemented in many large as well as small and medium sized industries. Another typical
weakness is a missing system for controlling and following up on the results of the risk analysis that has been performed.
However, not only industries but also governmental organizations, research institutes and hospitals are now introducing
risk management to some extent. The importance of risk management in projects can hardly be overstated. Awareness of
risk has increased as we currently live in a less stable economic and political environment.
In pursuing this goal, companies, now more than ever, would do well to begin by identifying their top drivers, then
pinpointing the top threats to those revenue drivers, and distinguishing between those that are predominantly downside
risks and those that are predominantly variable risks.
REFERENCES
[1] Convergence towards integrated risk management: results from the European.
[2] www.Slideshare.com
[3] www.wikipedia.com
[4] www.google.org

Risk Management in Business

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