Risk Management and Mitigation
Everyone knows what risk is; we use the word everyday and take risks regularly, whether we realize it or not. Through every decision you make, assessing the pros and cons, is a classic example of risk assessment.
Risk management is the process of making and carrying out decisions that will minimize the adverse effects of risk on an organization or against an objective. The adverse effects of risk can be objective or quantifiable like insurance premiums and claims costs, or subjective and difficult to quantify such as damage to reputation or decreased productivity. By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business(or individual) will protect itself from uncertainty, reduce costs, and increase the likelihood of business continuity and success.
A risk exists where there is an opportunity for a profit or a loss. In terms of losses, we commonly refer to the risks as exposures to loss, or simply exposures. A fire is an exposure. Defective products or defamation are liability exposures. The loss of business that results from a damaged building or tarnished reputation is also an exposure.
Probability is the likelihood of an event occurring, and severity is the extent and cost of the resulting loss.
Why Manage Risk?
There are many reasons to manage risk. Some of them include:
- Saving resources: people, income, property, assets, time
- Protecting public image
- Protecting people from harm
- Preventing/reducing legal liability
- Protecting the environment
Consider the use of risk management policies when the probability is low of a specific event, but the consequences are high.