1. What Is Risk? 3. Perspectives on Risk. Risk Management. 6. Characteristics of Risk Management 7. Advantages of Risk Management

Transcription

1 Risk Management 1. What Is Risk? 2. Why Do We Accept or Assume Risks? 3. Perspectives on Risk 4. What is Risk Management? 5. The Risk Management Process 6. Characteristics of Risk Management 7. Advantages of Risk Management 8. Stages of the Risk Management Process

2 1.What is risk? Risk means an exposure to the uncertainties which entrepreneurs must understand and know how to manage in order to achieve their objectives Risk can be defined as the combination of the likelihood of an event and its consequences. In all kinds of companies there is a potential for events and consequences, which are in fact opportunities to obtain gains (the positive side) or encounter threats to success (the negative side). Risk has inexorably been associated with any activity that an entrepreneur may undertake and which involves making a decision among several alternatives. Risk, therefore, accompanies any and all changes and is present in all all decisions. 2..Why should we accept or assume risks? Risk is considered to be a source of competitive advantages which need to be managed by the entrepreneur. Without accepting risks, there are no opportunities. Risk is indefectibly associated with the concept of opportunity. Business targets are focussed on seeking and exploiting opportunities that provide advantages, make a difference and add value. Nothing ventured, nothing gained. The fact that a company assumes risks brings with it: On the one hand, an opportunity, that is, the obtaining of value or the preservation of existing values. And on the other, a possible los in any of the company s key variables.

3 3.Perspectives on risk: The concept of risk can be analyzed from different perspectives; it has different focuses. A) Risk as a threat: The perception of risk as a threat refers to the possible negative events that could damage the company s interests or objectives, such as fraud, failures in systems, property damages or personal injuries, claims, a bad reputation,etc. B) Risk as an opportunity: The idea of risk as an opportunity refers to the relationship that exists between the risk and the return which the opportunity provides. The higher the risk, the higher the potential of the value sought should be, and, the higher the profitability expected, the higher the risk of loss. Risk return ratio:

4 C) Risk as uncertainty: Uncertainty encompasses all possible results, whether good or bad, and seeks a position of balance; by its very nature, it is found between threat and opportunity. Risk as uncertainty considers the full set of possible results which, starting from different options, should enable sustained growth. 3.What is Risk Management? Risk management can be defined as the process of making decisions in an environment of uncertainty with respect to an action that is going to occur and to the consequences that will exist if this action does occur. Success in business requires excellence in risk management. For this reason, entrepreneurs need to be intelligent in the management of risk. An entrepreneur must be aware of the risk, distinguish the different kinds of risk in order to learn how to mitigate then or to minimize their effects and optimize the resources used in management; all of this forms a part of the intelligence of business management. 4.The Risk Management Process: The management of risks is an essential part of the strategic management required of an entrepreneur. Its objective is to add as much value as possible to all of the company s activities in a sustained manner.

5 For this purpose, it introduces a common vision of the positive aspects, opportunities, and of the negative aspects, threats, that could affect the business project, increasing the likelihood of success and reducing the likelihood of failure, as well as the uncertainty of achieving the entrepreneur s objectives. The different environments in which risks can arise must first be determined, in order to then proceed to undertake a systematic identification, analysis and treatment of such risks. 6.Characteristics of Risk Management: Ongoing process in continuous development which takes places throughout the company s strategy. All of the risks that surround past, present and, above all, future business activities should be dealt with methodically. Risk management should be integrated into the company s culture. The entrepreneur must convert strategy into operational targets, by assigning responsibilities throughout the company, with each manager and each employee being responsible for risk management as a part of their job description. Risk management favors the measurement and reward of output in light of targets, thus promoting staff efficiency.

6 7.Advantages of Risk Management 8.Stages of the Risk Management Process: