Benefits of Risk Management

Taking risk is an integral part of growing and sustaining a successfull business. All businesses want to protect their assets, and the two step process of determining what risks are present and then handling those risks in a way that meets the goals that management has set forth for the organization is just the way to accomplish that.

Risk management occurs anytime management analyzes and attempts to quantify the potential for losses, and then, takes action or inaction depending on their analysis. Risk management is important to all businesses. It can mean disaster for companies who do not incorporate risk management correctly. Our latest recession in 2008 is a good example of this. We can blame most of the recession on bad credit risk management of financial firms. Many business have gone bankrupt due to inadequate risk management.

We also discussed the benefits of integrating risk mangement into business operations. Those benefits include not only avoiding risk all together but avoiding unnecesary risk, and carefully managing those risk the organization has decided to take on. For many businesses, the higher level of risk equals higher rewards that may be achieved. If you have ever looked at investing in stocks you know this to be true. A small micro cap company could reep huge returns if bought early and sold at the right time compared to a large blue chip stock that has been around for ages that might return a steady rate of return year after year. In summary, risk management offers a strategic method of gaining a return at the same time lowering risk as much as possible using a number of calculated methods as described in previous lessons.

 

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