Risk management - Coursework Example

It is for this reason that many organisations, especially corporate, have embraced the concept of risk management and are consequently developing capabilities to address it. A capable risk management structure is able to provide and maintain an organisation’s internal control and improve corporate governance. The commonwealth of Australia agrees that governance can be improved by managing risks effectively (Australian agency for international development [AusAID], 2005). Development of risk management capability also results in formulation of comprehensive enterprise risk management systems, which has been realised over time, contributes to the achievement of organisational goals (Casualty Actuarial Society [CAS], 2003).

However, many organisations face various challenges in developing risk management capability, some of which will be discussed here. Since risks are inherent in all corporations in today’s dynamic world, the management has the mandate to overcome these challenges and ensure capable risk management structures are put in place to address organisational risks. Reasons for developing risk management capability Risk management capability is a means of providing internal control. Internal control and risk management are largely symbiotic concepts. . In the context of ensuring an organisation meets its objectives, effective internal control utilizes risk management to cushions the organisation against external risks as well as protects it against risks generated from within the organisation that, if uncontrolled, would lead to the downfall of the organisation.

According to the AusAID (2005), the benefits of risk management are manifold and traverse strategic, operational and technical levels of management. The AusAID (2005) notes that risk management systems inform and communicate the risks that a firm faces to the strategic management thereby enabling it to make effective plans to deal with potential risks and in so doing, avoid the huge expenses associated with tackling risk consequences and ultimately ensure better organisational performance. Similarly, technical operations utilize risk management knowledge to put in place measures to mitigate against risks and therefore activities run smoother and more effectively produce desired outcomes.

The AusAID (2005) further states that the internal control afforded by risk management capability helps the organisation minimize unwanted surprises (risks) by ensuring effective and efficient operations, proper financial accountability and reporting, and compliance with laws and regulations. This review therefore shows that risk management is crucial in the attainment of internal control’s goals. The continued existence of an organisation demands that it balances its external and internal environments.

Gupta (2009) explains that the external environment comprises of entities that can affect the operations of an organisation yet are not