The success of a venture largely depends on the company’s ability to recognize and manage risks. Being the second name of the business, risk is everywhere. With the fast-growing digital and interconnected global environment, business risks are occurring with even greater frequency.
In this article at Infiniti Research, Anirban Choudhury explains that constant innovations and change in ways to operate have increased the chances of risk in organizations. Therefore, conventional measures are not enough to beat the risks.
Gradually, risk management has become a vital element of successful project delivery. Even the value that enterprise risk management can provide to big and small organizations should not be overlooked. Therefore, if the organizations want to create and maximize value for their shareholders and stakeholders, here are a few approaches they must follow:
- Risk Aware Culture: Educate the workforce in the practical aspects of risk management. Not just the regular staff but most senior business executives and the corporate board of directors should be aware of the same. Risk management responsibilities should be clear. Training and building awareness can help in establishing a risk management culture that will drive a successful
- Resource Allocation: Risk management needs considerable expertise and resources to be invested into activities ranging from basic risk control to advance quantitative risk analysis. The cost of these resources might be quite high, but the cost of losses due to lapses in risk management will be equally higher.
- Re-assess Risk Constantly: Factors like market conditions, volatility levels, financial strength of counterparties, physical environments, and geopolitical situations keep changing. To ensure effective risk management, companies must re-evaluate risks on an ongoing basis. Also, forecasting future exposures is necessary since hedge decisions are based on projected risk levels.
- Risk Mitigation: Transferring risks through windbreak transactions or other activities is often regarded as an effective and advisable risk management technique. Moreover, risk mitigation strategies also depend on the capacity of the firm to sustain risks and possible losses.
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