The Importance Of Risk Management In Business

Risk means the possibility of losing a valuable profit or assets, and in the business world Risk goes against the purpose of companies, therefore many people consider it to be the Achilles heel for businesses and especially for newly formed companies who do not devote attention to it, when it comes to business risk, its divided into four categories, and they are as followed, Firstly Operational Risk and it involves any risk that accurse from failure within the business itself such as a system failure ,Secondly financial risk and it involves the way the business handles its wealth from costs of capital to debt loans, Thirdly strategic risk and it involves changes with the industry itself such as new competition which may result in changes

Risk management is important because it's designed to help eliminate risks that would impact the business in a negative way, it’s the ability of a business to identify, understand, and address different types of risks to prevent different events from accruing and damaging the business, not only that but it gives companies the ability to monitor and control them. Risk management is measured to be one of the most important pillars of business, it is considered to be the recipe for success, as the goal of risk management is not to protect a business financially but it also gives managers the ability to protect his employees and customers from destructive occurrences, and that is why most managers put it on top of their list and privatize

Firstly we have the SWOT Analysis in the SWOT analysis risk is categorized into weaknesses and treats, weaknesses are considered eternal risks such as low diversification which may lead a company to negative event, and threats are considered to be external risks such as high regulations or competitors, with the SWOT analysis managers have the ability to better assert situations which could eventually improve their decision making. Secondly we have the cause convergent also known as the bottom up technique where it is believed the best way to identify risk is first look at an event where a possible loss may accrue and then look at the perils of such even and see how both are likely to impact, thirdly we have the HAZOP approach which is mainly in the development stage of operations, the mindset behind the HAZOP approach is to take highly complex risk problems and make them manageable by asking questions like "What is the purpose of X" "How could X deviate from this purpose?" or " what could cause such deviations" these questions are asked to different parts of the company until the whole business is examined. Lot of other techniques exist as well like surveys where questions are asked to seek risk in a particular area, anther techniques that could be used is working