RISK MANAGEMENT

Risk is an unforeseeable event that can result in either gains or losses in the pursuit of a goal. Risk is
a threat that any event or action will hinder the possibility of achieving the desired result in business,
goal implementation, and strategic plans.

TYPES OF RISK
A business owner may face various types of risks. It could be classified as financial risk, inflation risk,
economic risk, strategic risk, organizational risk, etc.
Major form of risk which an entrepreneur needs to take care of are as discussed below:
1. Strategic Risk. Refers to the internal and external events that may make it tough, or even
unfeasible, for an institution to attain their target and strategic goals. These risks can have serious
outcomes that affect organizations in the long term.
2. Economic Risk. Economic risk is the risk faced by a firm or a company that has a foreign branch
or investment in a foreign country because of factors such as exchange government policies, change
in government, decrement in the credit valuation of foreign investment or important development in the
foreign exchange affecting the business of the organization.
3. Financial Risk. Financial risk is the likelihood of losing money on an investing or business deal.
Furthermore, common and well-defined financial risks comprise credit risk, liquidity risk, and functional
risk. Financial risk is a type of hazard that can result in financial loss to interested candidates.
4. Market Risk. Market risk is an estimate of all the factors influencing the presentation of money
markets. From an investor's viewpoint, it refers to the likelihood of an investor undergoing losses due
to factors that affect the general performance of the money markets in which such investor has made
investments.
5. People Risk. The risk of financial losses and negative social performance related to inadequacies
in human capital and the management of human resources.
6. Technical Risk. In the business world, technology risk is the ultimatum of management technology
failure that could deal with IT security and economic intelligence.

General types of Risks

a. Pure risk. The risk is considered as pure, when it causes a sure loss, or a situation that it is in
break-even point, and it is always unpredictable.
b. Speculative risk. When the risk is pure the entrepreneur faces with those situations in which
can only lose, while in speculative risk, he can lose or can win.
c. Fundamental (unavoidable) risk. This is risk that affects entire societies or a large population
within a society.

RISK MANAGEMENT
Risk management is defined as the process of identifying, monitoring and managing potential risks in order to
minimize the negative impact they may have on an organization. Risk management is the process of
identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk
management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses
in an investment, such as a moral hazard, and then takes the appropriate action (or inaction) given the fund's
investment objectives and risk tolerance.

8 WAYS TO IDENTIFY RISK

1. Brainstorming
Brainstorming is the act of gathering team members to think about and discuss a subject and to form
solutions to any identified problems. This kind of meeting allows a team to speculate on ideas, discuss
facts and look at a project's future. You can use brainstorming to identify, analyze and address potential
risks by hearing from people who work at the front end of the business. Team members may have a
better understanding of how the business operates from the ground level and can share their own
perspectives of the company's risks.

2. Stakeholder Interview
Stakeholders are the people who have an interest in your project or business, and interviewing them
may help you better understand what they believe are the biggest risks. Stakeholders often have
invested significant resources, whether it be time, money, labor or all three, into your business. They
understand risk from an outsider's perspective as an investor, not a laborer or leader. This viewpoint
can help you learn what concerns your investors and how to address it.
3. NGT Technique
The NGT, or nominal group technique, is another method of brainstorming that offers a more in-depth
approach to the subject. Participants write their own ideas about the challenge without discussing it
directly with other group members. Then, a senior member of the team asks each participant for their
thoughts, which are written on a chart or whiteboard with overlapping items removed.
4. Affinity Diagram
An affinity diagram is a diagram that organizes data into categories based on their similarities. Ask each
team member to write what they believe are potential project or company risks and file each response
under a few categories.

5. Requirements Review
A requirements review is a review of a project's labor, material or financial requirements, and allows
the team to analyze requirements often and identify potential risks quickly.

6. Project Plans
A project plan is a basic outline of the project and its needs. This includes things like material and labor
needs, the timeline for the project and any risks that come with it.

7. Root Cause Analysis

A root cause analysis is an investigation of previous project risks and how they relate to one another
and the current project.

8. SWOT Analysis
A SWOT, or strengths, weaknesses, opportunities and threats analysis, is a great way to understand a
project's or business's risks alongside other important factors.
ANALYSIS AND EVALUATION

A risk analysis evaluates the possibility of an unforeseen adverse event that can affect crucial
business initiatives and projects. Organizations conduct a risk analysis to establish when an adverse
effect can occur, the effects of the risk on a business segment, and how the risk can be mitigated. A
business analysis draws up a control plan to restore the business operations to normalcy in a worst-
case scenario where an unforeseen negative impact occurs.
Qualitative Risk Analysis
Qualitative risk analysis uses a pre-defined scale to rate and prioritize identified risks by determining
the risk occurrence probability on a zero-to-one scale. If a possibility of a risk occurring is a point five,
you would rate the likelihood at 50%. If an impact occurs, you use a scale of one to five, where five
means a 100% chance the impact will occur. Qualitative risk analysis in finance can help managers
minimize the risk occurrence or prevent high-impact risks.
Quantitative Risk analysis
Using a quantitative risk model analysis, a company conducts a statistical simulation on identified risks.
You assign risk to the assumed value, with every input value generating a different risk analytics
meaning. Statistical analysis using graphs or scenario analysis helps the managers and stakeholders
make precise decisions to control risks. The statistical tools used in quantitative analysis describe the
outcomes from a risk and evaluates the possibility of achieving the desired results.

RISK TREATMENT

Risk treatment involves working through options to treat unacceptable risks to your business.
Unacceptable risks range in severity; some require immediate treatment, others can be monitored and
treated later.
Before deciding which risks to treat, it is vital to gather information about the:
• Method of treatment
• People responsible for treatment
• Costs involved
• Benefits of treatment
• Likelihood of success
• Ways to measure and assess treatments
Once decided on how to treat identified risks, there is a need to develop, and regularly review
the risk management plan.