Once a risk has been identified, it is then easy to mitigate it. Risk management is an important process because it empowers a business with the necessary tools so that it can adequately identify and deal with potential risks. Such a plan will enable a business organization to handle barriers or blockage to its success because it can deal with risks as soon as they arise. The result is a well-detailed plan that can be executed as soon as the need arises. When creating contingencies, a business needs to engage in a problem-solving approach. This option is possible if a business entity develops contingencies to mitigate the impact of the risk, should it occur. Acceptance: In some cases, a business may be forced to accept a risk.Mitigation: Decreasing the projected financial value associated with a risk by lowering the possibility of the occurrence of the risk.Avoidance: A business strives to eliminate a particular risk by getting rid of its cause.Response to risks usually takes one of the following forms: In such a case, the business will not usually experience many surprises, because the focus is on proactive risk management. They include planning, organization, cost control, and budgeting.
If a business sets up risk management as a disciplined and continuous process for the purpose of identifying and resolving risks, then the risk management structures can be used to support other risk mitigation systems. Acceptance or rejection of risks is dependent on the tolerance levels that a business has already defined for itself. Consequently, the result is a choice between accepting risks or rejecting them. A good risk management structure should also calculate the uncertainties and predict their influence on a business. Risk management structures are tailored to do more than just point out existing risks. Therefore, effective risk management offers the potential to reduce both the possibility of a risk occurring and its potential impact. Effective risk management means attempting to control, as much as possible, future outcomes by acting proactively rather than reactively.
Risk management encompasses the identification, analysis, and response to risk factors that form part of the life of a business.