Importance of Risk Management

Topics: Risk management, Risk, Operational risk Pages: 3 (1170 words) Published: November 19, 2012
MGD426 Risk Management

A risk is, consequently, a hazard that can derail an organization from accomplishing a business process, project, or any activity that is vital to a company’s sustenance. There are different classifications of risks: financial, operational, infrastructure, human capital, and marketing risks. These risks embody subcategories of risks that can negatively affect the company. Leverage, receivables, and investments are risks can hinder the financial situations of a company. The decline of profits, increased losses, and negative impact on business processes are some of the costs in the failure to control risks. Similarly, operational risk includes many losses that are associated with “internal processes, people and systems or from external events” (The Basel Committee, 2004). By continually improving operations, firms are better able to gain competitive advantage. Operational risks occur from the execution of a company’s business process. Although it is a relatively vague concept, it can be summed into a three-fold focus: processes, people, and systems. Internal fraud can be categorized into unauthorized activity, as well as theft and fraud; where as external fraud can be categorized with systems security, and theft and fraud. Importance of Assessment and Management

In order for an organization to achieve certain objectives, coming across risks is almost inevitable. Organizations that are aware of such calamities are, more often than not, enabled to actively manage hazards and encompass potential opportunities for competitive advantage. This precisely means that contingency planning is important as uncontrollable risks (i.e. environmental factors) can occur at any time. While an organization cannot stop these hazards from occurring, they can mitigate the negative effects. By mitigating these risks with necessary responses, the company can aim their resources at improving or continuing their business processes. Therefore, the...

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