[Commerce Class Notes] on Risk Management Pdf for Exam

Risk management is a process through which an organisation identifies, assesses and controls threats, if any, to its earnings and capitals. The source of threats could be due to a variety of causes like uncertainties in finances, legal liabilities, errors in strategy by the management, accident or a natural disaster. For digitised organisations, protection of data and threats to their IT security are of major concern.

Thus they have adopted risk management plans so that they can combat the threats against their important information and identify them to take strict actions. The importance of international business is huge for global organisations and they cannot take the risk of unexpected events causing major mayhem to their earnings. Risk management helps in this regard and helps them prepare for unexpected events with fewer software risks and extra costs.

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Strategies of Risk Management and its Processes

One of the principal features of international business is the risk management process, which comprises several risk management plans combined.

It is important to understand the circumstances under which the remainder of the process shall take place. Before the evaluation of risk, the criteria to be used must be established, and how the analysis structure will be carried out must be defined.

The company needs to identify potential risks which may act as a stumbling block and cast a negative impact on the company projects and earnings.

After identifying the possible risks, the company then needs to understand the odds of their occurrences and how much damage they may cost. The main aim of risk analysis is to get an idea about every instance of risk and the influence it may have on the projects and ambitions of the company.

After determining the likelihood of occurrence of the risk along with its consequences, the company should focus on whether they are equipped enough to accept that risk to move forward.

The companies rank the risks according to their severity and look to come up with a strategy to tackle them if the day comes. For this purpose, companies use many risk controls to develop a plan which includes various risk mitigation processes, tactics to prevent risks as well as contingency plans.

The risks, as well as the plans to tackle those risks, must be followed up at regular intervals so that specific actions can be taken in case there are any changes needed to be made. Companies should also always keep an eye on new risks.

The risk management process should be carried out in the presence of the internal as well as external shareholders and they should be consulted before every step.

Approaches to Risk Management

Companies can adopt different strategies for different risks following their identification and implementation of the risk management process. It has a major impact on maintaining the importance of the international business environment.

Eliminating risk is a near-impossible task. As a result, companies tend to take the strategy of minimising risks to the maximum attainable level so that they cannot damage the company reputation and projects.

Often companies come up with a plan to reduce the risks on the processes of the company considerably. This can be attained by making certain adjustments to some aspects of the plan or reducing the scope of occurrence.

In some occasions, the consequences of risk may be shared with the participants of the project, other departments of the business, with a business partner or someone outside the business. As a result of risk sharing, the company does not have to go through a tough time alone.

Sometimes companies take the bold decision of accepting the risks for the better good. They do so if they believe the profits or stakes of the project are higher and could be beneficial for the company and they have the funds to deal with the damages.

Conclusion

The importance of international management depends largely upon the risk management process, which helps in maintaining the significance of the international business environment. It helps to face the unexpected without causing much negative impact on the company. Thus it helps in maintaining the relevance of international business across the world.