The Importance of Risk Management in Life and Business

Risk is the potential for loss of either time or assets. By this definition, there is risk in almost everything we do.

Let’s say an individual in the market for their first home is taking a look at houses in their area. There’s a few things more than price that they take a look at, namely condition. They are careful to note age, understanding that the older a property, the greater the risk of things going awry. From there, they decide what to do based on what is best for them.

This is an example of risk management. When looking at risks, one goes through a few stages: identification, evaluation, and prioritization. The potential home buyer does this as well: they have an inspection done, and let’s say they learn that there are issues with the septic and heating system. They then must decide what course of action they take, knowing the risks associated with that property. The actions they take to deal with these risks are called risk management.

Because risk is so prominent in everyday life, everyone can benefit from knowing the basics of risk management. There are three primary strategies in risk management:

1. Avoid the threat altogether
2. Plan to reduce the negative impact
3. Transfer the threat to another party (which may or may not change negative outcome)

There are benefits to each approach, and the best approach depends on the specific situation.

Since risk management is so generally applicable to life, it is no wonder that it is very important within companies. Managers must frequently adapt risk management plans to protect their companies and employees. There are many factors to consider when evaluating risk itself, too many to cover in a single blog post alone, as there is considerable variation depending on the situation. Due to a risk manager’s ability to identify and destroy sources of uncertainty within an organization, they are being viewed as increasingly more valuable assets to business.