The Risk Management Process

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The Risk Management Process
Business 4099 The Risk Management Process
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The Risk Management Process
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The Risk Management Process

• Step 1 Identifying the Risks
• This is possibly the most important step please
  see the following table.
• A table like this or any standard check list
  cannot possibly meet the actual needs of an
  individual or an organization given the wide
  range of unique risks that each faces.

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The Risk Management Process

• Step 2 Evaluating the Risks
• There are two characteristics of risks that must
  be evaluated the size of the potential loss and
  the probability of occurrence.

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The Risk Management Process

• Step 3 Controlling the Risks
• There are a number of alternative strategies
  available
• Avoidance
• Separation
• Prevention or reduction of frequency

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The Risk Management Process

• Step 4 Financing the Risks
• For families financing a risk means finding
  someone to share it with through insurance.
• For companies facing financial and operating
  risks, the choices are obviously wider including
  the use of swaps, forward contracts, future
  contracts, options, etc.

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The Risk Management Process

• Step 5 Monitoring the Risk Profile
• You dont manage your risk once and then forget
  about it.
• Material risks will change over time.
• At the household level, material risks will
  change as you move through the personal financial
  life cycle both because of the risks you have and
  your financial ability to support them.
• At the household level, you would be most likely
  to revise your estimate of your risk situation
  when changes such as marriage, birth of a child,
  marriage break-up, children becoming independent,
  retirement, death of a spouse occur.
• Risk probably should never the less be reviewed
  on a regular annual basis as well.