Risk management | Risk management process

Published on 29-Jun-2022

By risk, we usually mean future uncertainty. We usually consider the risk to be negative. In every case of man, there is danger, uncertainty, and catastrophe. And for the insurance activities to solve this uncertainty. So it can be said that the origin of insurance is due to risk. 

The main source of insurance is risk and uncertainty of risk.

 The following are some definitions of insurance experts:

According to Etbah, "Risk is the uncertainty of any financial loss." 

According to Eikhar, "Risk is a measurable and predictable uncertainty."

 M, N, Mishra has provided a significant definition, according to him, "the uncertainty surrounding any financial loss is the risk." So it can be said that risk is an unforeseen uncertainty that brings financial loss to people.

 Risk management

 Risk management consists of the two terms risk and management. 

First, you need to know the definition of risk and management. These are two broad issues. So here is a brief definition of two things.

 Risk refers to the uncertainty of financial loss in a nutshell. 

And management is a process through which a task or an organization's purpose or an initiative can be executed smoothly. 

Therefore, risk management refers to the process by which risk is identified, the amount of risk is calculated, and effective measures are taken to deal with the risk.

 There are three main steps in risk management:

 1. Identify the sources of risk:

 2. Determining the amount of damage that occurs when a risk occurs or determining the impact on an individual or organization and

 3. Determine and implement effective and efficient risk management measures.

 Risk management is considered by some to be insurance management. The idea is wrong. Because the risk system and insurance system are not one. Insurance management refers to the administration of insurance and risk management refers to the process of dealing with risks.

 Risk management functions

  Risk management has to perform three tasks. E.g.

  1. Identifying sources of risk.

 2. To determine the consequences of the risk.

 3. Determining the best approach to risk management.

 Identifying potential risk sources: 

The first task of risk management is to determine what causes the risk, which increases the likelihood of loss. So insurance companies identify the sources of risk to take out insurance liability. 

Do surveys for him. But this method is not very useful in risk management. Accounting statements are currently being reviewed to determine the source of the risk. 

If the financial statements are properly analyzed, it is largely possible to identify the sources of risk. 

So whether an investor will invest money in a business or not, he evaluates various financial statements including financial statements such as balance sheet, income statement, and profit and loss statement to know the amount of risk. 

Currently, the sources of risk are changing. New sources of risk are going to be noticed. 

As a result, a risk manager faces new challenges in determining the source of risk and loss. Therefore, the success of risk management depends on how efficiently it can identify the sources of risk and loss.

 Evaluating the consequences of the damage caused by the risk: 

The second level of risk management is to evaluate the damage caused by the risk. The evaluation includes both the profit and loss and financial condition analysis of the organization. Loss assessment requires a thorough knowledge of the propensity and depth of certain types of damage. Because the risk is constantly changing and expanding. Therefore the results of each loss need to be evaluated individually. Otherwise, it will be difficult to make the right decision in case of risk.

 Determining the best approach to risk management: 

Choosing the best approach to risk management as there are differences in risk levels and trends, risk management. There are different ways to do it. You need to choose the best way to become proficient in risk management. The more accurate and effective the approach, the more efficient and successful the risk management will be. Hence the need to address risks. Determining the best and correct approach to implement it.

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