“Risk management is the way of identifying, measuring, and dealing with the threats to an organization's capital and earnings"
Definition according to ISO 31000, "Risk management is the way toward assessing the chance of loss or damage and finding a way to battle the potential Risk. In a simple way".
An example of risk management is the point at which a bank representative surveys a potential credit to figure out what the odds are that the purchaser won't be able to pay it back. And then choose how to continue to allow the advance and the amount to charge in premium.
An example of risk management is the point at which a man assesses the odds of having real vat charges and chooses whether to buy pet insurance.
There are different kinds of risk and risk management is the process that deals with them through identification, evaluation and proper handling.
Stated in simplest terms, risk management refers to the practice of recognizing the potential risks that are likely to hit an organization in prior, scrutinizing them and initiating the necessary preventive steps to curtail the risk factor. In real essence, risk management arises any time an investor chooses to buy low-risk government bonds over the more uncertain costly corporate bonds, when the fund manager evades his currency exposure with currency derivatives and when the bank executes a credit check on any individual before issuing a personal line of credit.
Succinctly, stockbrokers make use of the financial instruments like choices and futures, and money managers employ these policies like portfolio and investment diversification, to ease the risk factor and manage them. Financial risks can be in various forms such as of volatility in capital markets, high inflation, recession, bankruptcy, and many more. A risk management plan ever more takes the account of organizations’ processes for detecting and controlling threats to its digital assets, comprising proprietary corporate data, a client’s personally identifiable information and intellectual property. After implementing the risk management process, there are various strategies that the corporate organizations can take in regard to different types of risks, such as risk reduction, risk avoidance, risk sharing and risk retaining.
The standards for risk management have been developed by many organizations, including the National Institute of Standards and Technology (NIST) and the ISO. These standards are intended to aid company’s spot threats precisely, assess unique vulnerabilities to find out their risk, make tactics to reduce these risks and then instigate risk reduction efforts based on the strategy of the organization. All the while, organizations those do not give due importance to risk management while making financial decisions might cause mayhem on investment in times of financial turmoil in an economy.
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