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Risk management as an indispensable part of the strategic planning for the organization
Table of content
  1. Why is it important to manage risk and what is risk?
  2. The nature of risks
  3. Types of risk
  4. Effective risk management
  5. Key stages in risk management
  6. Summary
Why is it important to manage risk and what is risk?

When you are working on the company strategy one should also include a risk management in it.

Risk is a combination of the probability and consequences of adverse events. Knowledge of the probability of an adverse event allows you to determine the probability of favorable events.

Also risk is often called a specific event that can cause harm to someone.

The nature of risks

Risk always implies the probabilistic nature of the result, and the word risk is often understood as the probability of obtaining an adverse outcome (loss), although it can be described as the probability of obtaining a result other than expected. In this sense, it becomes possible to talk about both the risk of losses and the risk of excess profits.

In financial circles, risk is a concept that relates to people's expectations of events. Here, it may indicate a potentially undesirable effect on an asset or its characteristics that may be the result of some past, present or future event. In everyday use, risk is often used synonymously with the likelihood of loss or threat.

Types of risk

  1. Technical risk - the probability of failure of technical devices with the consequences of a certain level (class) for a certain period of operation of a hazardous production facility.
  2. Individual risk - the frequency of damage to an individual as a result of the impact of the studied risk factors for accidents.
  3. Potential territorial risk (or potential risk) - the frequency of realization of the impact factors of the accident at the considered point of the territory. A special case of territorial risk is environmental risk, which expresses the likelihood of environmental disaster, catastrophe, disruption of further normal functioning and existence of ecological systems and facilities as a result of anthropogenic intervention in the environment or natural disaster.
  4. Risk of information security. In information security, risk is defined as a function of the probability of a threat and potential impact. If any of these variables are close to zero, the total risk is close to zero.
  5. Insurance risk.

Effective risk management

Risk management is a risk management system that includes management strategies and tactics aimed at achieving the main business goals of the business.

Effective risk management includes:

  • management system;
  • identification and measurement system;
  • support system (monitoring and control).

Modern economics presents risk as a probable event, which can have positive, neutral or negative consequences. If the risk implies the presence of both positive and negative results, it refers to speculative risks. If the consequences are negative or absent, such a risk is called net.

The purpose of risk management in the economic sphere is to increase the competitiveness of economic entities by protecting against the implementation of net risks.

Key stages in risk management

  1. The risk is identified with a concomitant assessment of the probability of its implementation and the scale of the consequences;
  2. The risk strategy is developed in order to reduce the probability of risk realization and minimize possible negative consequences;
  3. Methods and tools for managing the identified risk are selected;
  4. Direct risk management is carried out;
  5. The achieved results are evaluated and the risk strategy is adjusted.
  6. Key stage of risk management is the stage of choosing risk management methods and tools.

Summary

So risk management helps product managers to plan ahead and to do what it takes to make the 'cake' that is their project a success - but we all know by now that not all cakes are the same, this is where project management strategies come into play.

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