5 Steps of Risk Management

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Risk Management In 5 Steps

Despite the impossibility for a company to foresee all the risks inherent in its business, you can detect some, basically the most common ones. The management of these risks requires the implementation of a strategic study. Or you might be in need of professional services like peo companies in Hawaii who will help you implement an ultimate strategic study. However, you need to understand that – before determining the stages of risk management, it is essential to determine its principles.

Principles Of Risk Management

Risks can be defined as a hazard that affects wealth and decisions. Risk management translates into a process of assessing the gains and costs of reducing risk and choosing the right solutions. The decision must take into account the different circumstances surrounding the project. The risks inherent to the company exist in several forms:

  • CREDIT RISK – The case of a debtor who may not be able to honor his commitments.
  • INTEREST RATE RISK – The case of a change in the price of a security (debt, compound security) or a derivative product as a result of a change in interest rates.
  • LIQUIDITY RISK – Risk linked to a sale or purchase transaction.
  • COUNTERPARTY RISK – The existence of a fault on the part of the seller or the buyer during a transaction.
  • OPERATIONAL RISK – Risk related to the realization of activities within the company.
  • CURRENCY RISK – Risk linked to the change in the exchange rate.

The 5 Stages Of Risk Management

For an excellent risk management, the implementation of a particular study is essential. Following these few steps allows the company to manage the risks so that they cannot be barriers to the company’s projects.

  1. RISK IDENTIFICATION

Identification consists of identifying all parties at risk. With this in mind, the company must draw up a list containing all the potential risks. It must distinguish the most important risks on the one hand and the less important ones on the other hand. With this list, you can analyze their correlation.

  1. RISK ASSESSMENT

This step consists of assessing the risks according to their severity, determining their potential impact and the extent of the damages. Apart from that, it allows measuring the costs associated with the identified risks. To achieve this, data collection and statistical analysis are required.

  1. DEFINITION OF SOLUTIONS

The entrepreneur has several possible solutions to find the most suitable. He can define the solution according to the risk itself by studying the possibility of elimination or a limitation of its effects. It can take into account the characteristics of the project and apply some modifications in order to avoid risks.

  1. IMPLEMENTATION OF SOLUTIONS

After determining the most suitable solution, it must be implemented. It is important to define the cost of implementing the solution according to the means available to the company. The related costs must be reduced. Otherwise, they could generate additional costs for the company.

PRO-TIP: If you don’t know how to implement the solutions, you can always think of having a word with your experts. Contact peo companies in Hawaii right away!

  1. CONTROL

Risk management requires regular monitoring. This monitoring aims to guarantee the reliability of each step. This allows for the establishment of medium and long-term solutions.

Remember – Risks come from not knowing what you are doing. So, it’s important to know what your next step is and for that, you can hire professionals. If you need professional assistance on risk management, you can contact peo companies in Hawaii!