Risk Management Policy
Some definitions used in Risk Management Policy implementation
Risk: Risk is an unforeseen event. Its occurrence adversely affects an organization's ability to attain its set goals. Risk can be broadly classified into three categories.
They are as follows:
Opportunity: Bringing in the prevailing situations to one's advantage.
Hazard: Negating the possibility of an exposure from turning into a financial loss and
Uncertainty: Dealing with unpredictable and sudden changes
Here, we also note that, risk appetite means an organization's decision of risk acceptance in the path of attainment of its set goals.
Purpose of Risk Management Policy
The purpose of risk management policy is manifold.
Some of them are listed below.
|Improved decision making process||Improved decision making, on account of risk management policy implementation, minimizes the probable losses of the organization.
It also leads to a better management of the prevailing uncertainties.
|Prudent acceptance of new opportunities||Risk management policy teaches how to make a cost benefit analysis. So, while accepting new opportunities, one can make a well-informed and well-balanced choice.|
|Optimization of use of available resources||Resources are scarce and can be put to alternative uses. Risk management policy devices techniques for the optimum use of this resource.|
Properties required for effective risk management
- Effective communication and
- Risk management framework
The above-mentioned characteristics are required for the establishment and also for the smooth execution of risk management policies.
Risk Management Policy is put in place by organizations to ensure their smooth march to success. The management policy begins by identifying the problem areas or risks faced by an organization. It then formulates strategies or plans to effectively face them. Since risks are unforeseen events, they may lead to disruptions in the day to day working of the organization. The idea is to predict the risks and formulate an action plan beforehand. Now comes the implementation stage of the policies formulated. Implementation requires smooth coordination among the different departments of an organization. Proper implementation demands that the process is carried out on a shared responsibility basis. Last but not the least, the Risk Management Policy program is the process of continuous evaluation. Continuous evaluation keeps the process updated. The policy is thus kept flexible and can adjust to changing market conditions. Financial risk management also comes under the purview of Risk Management Policy.