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Risk Management in an Organization: Why is it important?



There are always uncertainties that come with any kind of endeavor. Whether it’s a career move or a new business venture, there are possibilities of harm or loss. Risks are also very much present within organizations. By definition, risks are different kinds of situations that are exposed to threat or loss. But with enough preparation, the effects may be avoided or alleviated. It is up to the organization how it will be resolved, which is why it’s necessary to implement ways to manage these risks.


What do you mean about risk management?

Risk management in an organization refers to the identification of potential risks or threats beforehand that could affect the business. Risk management is not just about identifying these risks, but it’s also about finding solutions to prevent these from even seeing the light of day.


Risks can come from external or internal factors. External risks are those that organizations have basically no control over such as political issues, exchange rates, etc. Internal factors, from the word itself, refers to those that are in direct control of the management.


Risk management helps an organization make better decisions.

It is necessary because risk management focuses on formulating corporate strategy as well as making operational decisions to driving projects. These are executed with current information regarding external and internal risks.


Risk management is an in-depth look at these risks that will enable optimized performance.


An organization responds in a more agile manner because they have been prepared for it. This way, adverse effects can be minimized or even prevented.


It creates a safe and work environment for everyone in an organization.


It helps increase the organization’s stability and helps the legal liability.


Risk management follows processes and strategies. Here are the steps.


Establish Context: Establishing criteria to evaluate the risks as well as the structure of the analysis to be performed.


Identify Risk: Identifying and defining potential risks that could affect the organization negatively.


Analyze Risk: Analyzing how these risks will and how it will impact the company.


Assess and Evaluate: Evaluate the likelihood of these risks to occur and its consequences. This way, the company will be able to assess whether the company is willing to take on these risks.


Mitigate Risk: This is where the company develops a plan on how they can alleviate the negative effects of the risks identified.


Monitor: Following up on the existing risks and track new ones.


Communicate and Consult: Shareholders, both external and internal must be included in the conversation and consultation to come up with necessary to risk management steps.


Many organizations have always stood by risk management. Simply put, risk management is very important. Why? Because without it, an organization wouldn’t be able to define the objectives they need to for the future. Any company that defines its objectives without taking into account, it’s highly possible that they will lose their direction once these risks show up.

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Created by ARK Properties 2016

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