Essay Sample on Risk Management in Organizations

Introduction

In the past decade, there has been a growing concern in the management of client risk in organizations. The word "risk" is defined as the probability of bad things happening at some point in future. Management is defined as the act or skill of dealing with people or skills in a way that is successful. The objective of this paper is to evaluate and examine the correlation between the identification of risks and vulnerabilities to assets and its importance in risk management.

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Risk management can be defined as; properly and effectively applying management policies to identify, treat and monitor risks. The risks in the organization can be categorized into four broad categories Financial risks which involve accounting errors, fraudulent acts, cash flow issues among other financial issues. Operational risks on the other hand deal with personnel, assets, and data. Legal risks may occur in the form of contracts, state and federal actions, the change of government policies and regulations. Hazardous risks which may be caused as a result of natural disasters, accidents, and unsafe practices. Since our focus on this paper is the identification of risks on assets, the focus will be on operational risks.

It is important for risks to be quantified and qualified (Tchankova,2002), four things need to be considered by the leadership. What the organizational goals are, the likelihood of something negative happening in the future, the consequences of something bad happening, and finally determining what risks are acceptable and those that are not. If a risk is unacceptable, it should be mitigated and ways of dealing with it formulated. Once risks are classified from most dangerous and disastrous to the least dangerous the next step is responding to the risks. The following approaches have been accepted and accommodated into organizations over the years. Avoiding the risk, transferring the risk, controlling the risk and insuring against the risk.

Avoiding the risk

Reduction of risks can be minimized by seizing to do activities that create the risk. An example of how this can be achieved is through the use of cheques instead of having large amounts of money in the organization.

Transferring the Risk

This happens by allowing a third party to bear the risk. An example is the use of warranties, the downside for this is that transferring some risks, for example, extended warranties are at a price.

Controlling the Risk

From the list of the asset, leaders can use the following strategies to control the risks. Procedures need to be clearly put in place in the areas that have been identified to be of risk. A fire assembly point can be put in place in case of a fire. Signs can also be put up in organizations to assist in avoidance of risk. For example, a sign informing employees to use protective clothing when handling dangerous machinery. The office equipment and machinery need to be maintained and kept in order. If something needs to be repaired, it should be as soon s possible. Proper training is also a method used to effectively control risks in an organization. The leaders should conduct training on the risks involved and how to deal with the situation should they arise. Technological solutions can be used to control information, for instance, backing up data. This is important as it ensures there are always extra copies in case of loss or damage

Insuring Against Risks

This is the last measure in risk management which is usually used when the above-mentioned solutions fail to bear fruit. There are two main types of insurance, life insurance and general insurance (Williams, 1985). Life involves the protection of death and disability while general deals with the property, loss, theft or public liability. The choice to insure needs to be informed based on what is being insured, the company that the leadership intends to deal with and the type of policy.

There are numerous advantages of asset risk management, it promotes good management in the organization (Rosemann,2005). It helps organizations adhere to regulations and laws that have been recently passed with ease. It helps in saving money in case of a crisis because there has been prior preaparation.

The final step is the implementation of the risk management plan, this is done in four broad categories. Issuing a statement for risk management, conducting training, documentation of the procedures and allocation of responsibilities. For the risk management plan to be effective it should be an ongoing process and be constantly updated. The existing plan should be compared to existing risks and consider the effectiveness. Risk reports should be regularly reviewed and updated.

The identification of asset risks is important in any organization as it informs the leadership of the organization's vulnerability (Vatsa, 2004). The leaders can know the effect asset failure has on the customers. Asset risk management is important for the safety of the employees if heavy and dangerous machinery is being used. For a company to succeed it is paramount to have a robust asset risk management framework.

Reference

Rosemann, M., & Zur Muehlen, M. (2005). Integrating risks in business process models. ACIS 2005 Proceedings, 50.

Stulz, R. M. (1996). Rethinking risk management. Journal of applied corporate finance, 9(3), 8-25.

Tchankova, L. (2002). Risk identification-basic stage in risk management. Environmental management and health, 13(3), 290-297.

Vatsa, K. S. (2004). Risk, vulnerability, and asset-based approach to disaster risk management. International Journal of Sociology and Social Policy, 24(10/11).

Williams, C. A., & Heins, R. M. (1985). Risk management and insurance. McGraw-Hill Companies.