Why is it important to identify and prioritize risk?

There is a great urgency to identify and prioritize the risk that the firm is confronting because this guide
the relevant persons in undertaking informed decisions. By being proactive, such will aid in shun
unnecessary or egregious surprise inasmuch as risk continue to challenge the firm. Firstly, by identifying
the risks, we can tell on which categories such fall and as to what degree is its severity and time
sensitivity. Afterward, this will help us to develop a comprehensive analysis minimizing the risks involved.
Finally, this will help us in allocating the present resources efficiently.

What is risk management? What is the role of risk management in business?

Risk management is the firm’s deliberate act of calculating and scrutinizing the surrounding risks and
formulate strategies to alleviate or address them. In its strict sense, risk management follows a systematic
approach of identifying, analyzing and controlling the areas of concerns or events that bears potentialities
of causing untoward damage or injury; hence necessitating change to address such. In a nutshell, this is
an act or mitigating the negative effects of risk.

Furthermore, the roles of risk management are that it is through this mechanism that the risk exposure to
any specific program are assessed and are systematically managed to minimize the associated risk to a
permissible level. Therefore, the risk management is there to reduce the risk and maximize the good risk.

One financial tool to improve profitability is to control costs. How to control costs?

Ensuring sustained profitability is may be attained through the strict cost control. To apply this, we
must focus on the considerable expenditure items and finds means to cut down or minimize these. The
firm must be cost aware, and this may be achieved through proper benchmarking by comparing the
acquisition cost of the raw materials, the labor expenses, and the related overhead costs. Cutting down
costs in terms of raw materials may be performed by purchasing items in bulk, paying right on time to
avail the offered discounts, and building strong connections among suppliers. In terms of labor, the firm
may employ few individuals if the company is not that big and offer incentive to highly efficient employees.
Although the company’s goals is to reduce costs, it must not disregard the quality of its products; hence,
the company must maintain the equilibrium between cost and quality. Budget may also be adopted by the
company for a dynamic financial management. Such a budget then will be compared to the actual results
of which the company will assess on which areas in the budget needed to be modified. In addition, the
company must develop a positive attitude when it comes to budgeting and must be open to all
suggestions or ideas asserted by competent individuals. Finally, the firm must utilize to all of its resource
to its best use while having the least amount of waste. Eliminating waste, as much as possible will help
improve the company’s profitability.

What are the 6 basic principles of risk management?

1. The six (6) fundamental risk management principles are (a) Create value, (b) Address Uncertainty
and Assumptions, (c) Be an integral part of the organizational processes and decision making, (d)
Be dynamic, iterative, transparent, tailorable, and responsive to change, (e) Create capability of
continual improvement and enhancement considering the best available information and human
factors, and (f) Be systematic, structured and continually or periodically reassessed.
Give 4 most commonly encountered areas of risk management

Some examples of the commonly encountered areas of risk management are (1) Enterprise risk
management, (2) Risk management activities as applied to project management (3) Risk management for
megaprojects, and (4) Risk management of information technology.

Why is risk in business both desirable and important?

There is a striking phrase that goes: “sometimes the biggest risk is to do nothing” — idleness or
neutrality in pressing things is of pressing concerned is often discouraged, even Dante Alighieri
dissents such an act. One way or another, a business will always encounter risk, and there are
opportunity costs attached to it. Firms may find means to mitigate risks, for example getting an
insurance of the building, to minimize the effects of an unfortunate events. There are also risks
that require the company to put up a large sum of money to invest in a project; nevertheless,
some are hesitant to engage because of the idea of “all or nothing” or that they may lose a
considerable amount of money, or all of it. That is why in these cases, financial management
also comes into play.
Risk is desirable, especially to those who have an aggressive risk appetite. In fact,
accordingly, Anglo-American firms perceive risk and opportunity to gain profits and apply risk
management for the attainment of its objectives. There are actually financial management tools
that could help the management in assessing whether the it is a profitable investment or not and
how many years does it take to recover the initial capitalization. Hence, businessmen as
decision-makers should ensure that they are making informed decisions and calculated risks
after measuring it, understanding its nature, or completely removing it if seen as not beneficial.
Risk is crucial among firms, because just like humans, this is what stimulates a
company’s fight or flight response, or whether to engage to it if its is lucrative, or flee from it if it
is harmful to the firm. Again, it is highly discouraged that the firm remains idle or neutral when it
comes to this concern; hence it must look in-depth into these matters, assess it, contemplate on
the courses of action to undertake so as to resolve or minimize it to have a better business
environment or to function well in the business arena. Hence, risk is the driver that stimulates
the right climate for risk management.