Structural and Sequential Method of Dealing with Risks - Essay Example

s School Risk management involves a structural and a sequential method of dealing with uncertainties and risks involved, and since these risks pose a potential threat, it is crucial to plan ahead of time on how to avoid these threats, and more so, strategize on how to resolve the crisis if any such situation arises. On other words, risk management deals with the effective management of the available resources to avoid any kind of risk, and to ensure the effective utilization of these resources once an uncertain situation hits the company. Risk management can be executed in a variety of ways, which comprises of strategies including the transfer of the risk toward another party, avoiding any such risks beforehand, reduction of the after-effects and consequences of the risk once it hits the organization or in another case, accepting the consequences posed by a risk. Also, the nature of risk management depends on the kind of risk posed on an organization, i.e. in case of a physical risk; the risk management would involve analysis of potent risks on property of the organization, while financial threats may be resolved by considering insurance options etc. Also, the threats may be initiated from many different sources, for instance, there may be environmental, technological, and political or in some cases even organizational threats involved, which the manager may have to deal with. Prior to the execution of the risk management, assessment of the risk is quite crucial. This involves the analysis over the extent of the severity of any kind of potential loss which may occur or the chanced of the occurrence of the loss. The manager must measure the value via various indicators he/she might come up with during the analysis. However, if the statistical data is available for the cause, this would be an ideal situation, as the risk assessment in this case would be the most accurate one. Risk assessment, here, implies that the manager undertakes the holistic view of the organization, considering the resources, internal and external environment, along with the market conditions and any other factors which must be taken into account to make a prediction on what kind of threats may affect the organization. Based on this analysis, the manager clearly identifying the nature and the extent, also the probability if the threats which the organization may have to face in the future. Once the analysis is conducted, the manager can then consider the options and then take considerable time to choose the most desirable options to avoid any kind of risk beforehand. Thus, once the risk analysis stage passes, the manager then explores the potential treatments available to minimize the chances of risks, which includes avoidance of the risk, risk reduction, risk retention or risk transfer, each of which would be discussed in the paper. Risk avoidance is usually the most suitable option, since it implies the avoidance of any kinds of activities which may induce risks for the organization. For instance, if the manager assesses that buying a certain property or venturing in a certain business may bring along the liabilities with high costs, he shouldn’t consider that very option, in order to avoid the costs applicable once the crisis occurs. On one hand where this seems to be a very favorable option since one is avoiding all the risks, however, on the other hand, the manager may also have to compromise on the benefits which may come along, thus risk avoidance can turn out to be quite a complex task at times. Secondly, risk reduction is yet another option which can be explored, and involves the reduction of the possibilities of any kind of losses. A good example would include the placement of sprinklers in a building to ensure the fire control if any such incident occurs. However, the manager has to consider the cost of this method as well, for instance, installation of a modern fire control system may seem like a positive option, but the company may not be in a position to pay a higher price for such a system. Similarly, another initiative companies take in this context is outsourcing, whereby companies outsource some aspects of their business to focus more on other more important factors, to reduce any kinds of risks in the business. In such a case, the managers are reducing the cost of their own risks and thus, minimizing the effect of any kind of potential threats. Another method to manage the risk would be risk retention, which implies the acceptance over the loss once it has occurred. Self Insurance may be a viable strategy for risk management in this context (Holmes 2002). This strategy, however, is suitable where the cost incurred upon the organization for retaining the risk is low. Also, this is an option which can be used by the managers especially when he has limited options to take an action, for instance when the manager is not at a position to avoid or in another case, even transfer the risk upon another party(Merla and Al-Thani 2008). This implies that any such risks which pose such a huge price over the organization, that insurance doesn’t even stays as an option to be considered. One good example to demonstrate the case would be war, since war is quite a huge catastrophe, and in case of a war, one can neither avoid it, not transfer the risks to someone else, so risk retention is the only option left for the manager to pursue. Lastly, risk transfer is yet another option for the managers to pursue once the threat becomes uncontrollable for the manager themselves. There are many different ways to execute risk transfer, preferably though by hedging or in some cases by contracting. Also, insurance is yet another kind of risk transfer where the company makes sure that the liabilities would be borne by the insurance companies (Hopkin 2010). Similarly, in some cases the contract agreement may contain some clauses or the language of the contract may be indicative of the transfer of the risk to another party. Financial risks, however, may be transferred via derivatives to another party. In some cases, risk retention may also be acting as a strategy where risk is being transferred to another party, for instance when the risk is being transferred to yet another group, the risk is automatically being transferred and retained both at the same time. Thus, all four of these risk management techniques can turn out to be beneficial if executed at the right timing, and after careful assessment. However, the manager still has to keep the resources and the company`s vision in his mind before planning out a strategy. The aspect of uncertainty must always be kept in mind while managing risks even before they occur, and thus, the manager should always keep a margin and space to enact if any such situation occurs. Generally, though, risk retention and risk transfer are the most common techniques being executed by the managers all around the globe, also these are also the most critical and technical ones since planning and execution of these strategies take a lot of time and energy, also intelligent planning. Careful risk management of an organization can save a lot of resources of the firm at the same time as well, since the cost borne after a crisis may be unmanageable without an effective risk management department within the organization. Bibliography (1999). Risk management. Leicester, UK, Perpetuity Press. http://www.jstor.org/journals/14603799.html. AMERICAN SOCIETY OF INSURANCE MANAGEMENT, & RISK AND INSURANCE MANAGEMENT SOCIETY. (1969). Risk management. New York, N.Y., American Society of Insurance Management. AMERICAN RISK AND INSURANCE ASSOCIATION. (1997). Risk management and insurance review. Malden, Mass, Blackwell Publishers. http://www.blackwellpub.com/asp/journal.asp?ref=1098-1616. HOLMES, A. (2002). Risk management. Oxford, U.K., Capstone Pub. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=67239. HOPKIN, P. (2010). Fundamentals of risk management understanding, evaluating, and implementing effective risk management. London, Kogan Page. http://site.ebrary.com/id/10395934. MERNA, T., & AL-THANI, F. F. (2008). Corporate risk management. Chichester, England, Wiley. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=470193. Read More