Risk Management is very important business decision of know-how within the business industry. It involves assessing and quantifying business risks, taking measures to control or reduce them. Risk often is part of the compliance function, but also may be part of specific business units, such as securities trading desks or loan origination market trends and consumer behavior.
The strategies to manage typically include transferring the burden to another party, avoiding venture, reducing the negative effect or probability of the occurrence, or even accepting some or all of the potential or actual consequences of a particular risk.
Certain aspects of many of the investment management standards have come under criticism for having no measurable improvement on risk, whether the confidence in estimates and decisions seem to increase.
When undertaking a business venture, it is highly advisable not to put all “eggs in one basket”, this means that you should undertake more than one business line, this ideally works well after you as an entrepreneur becomes well established and quite experienced in the business environment.
In ideal investments, a prioritization process is followed whereby the risks with the greatest loss (or impact) and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order. In practice the process of assessing overall risk can be difficult.Balancing resources used to mitigate between risks with a high probability of occurrence but lower loss versus a risk with high loss but lower probability of occurrence can often be mishandled.
For example, let’s say you own a business of making Carbonated Drinks; you can not just be producing one type of drink. The reality of having multiple investment ventures saves your business in very difficult times especially when there is a recession. When your major business line is heated by it, some of the business portfolios will save you at least and provide you with helping hand when you want to get your business back on track.
Assets are prone to two types of risks-that systematic and unsystematic rick.
This is the type of risk that affects one particular type of assets. You as the business owner need to have the know how of the proneness of your assets to particular risk for example those that are prone to fire and theft among others. Intangible risk management identifies a new type of a risk that has a 100% probability of occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient knowledge is applied to a situation, a knowledge risk materializes. Relationship risk appears when ineffective collaboration occurs. Process-engagement risk may be an issue when ineffective operational procedures are applied. These risks directly reduce the productivity of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation, brand value, and earnings quality. Intangible risk management allows risk management to create immediate value from the identification and reduction of risks that reduce productivity.
Risk management also faces difficulties in allocating resources. This is the idea of opportunity cost. Resources spent on risk management could have been spent on more profitable activities. Again, ideal risk management minimizes spending (or manpower or other resources) and also minimizes the negative effects of risks.
This is the type of risk that affects all assets of the business i.e. all assets are prone to damage and fire. These assets need to be properly managed and appropriate actions taken so as to preserve them for a long time to come.