Define risk management in the context of the five-step risk management process. Why is it so...

Define risk management in the context of the five-step risk management process. Why is it so important to manage risk?

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Expert Solution

Risk management: It is the process of identifying the risk associated with a project which can hamper the desired results and results in lowering of profits. It is a systematic process and helps taking remedial measures to minimize the risk and hence, maximize the benefits.

The five steps of risk management process are –
1. Identify the risk: It is listing down all the possible risks associated with a project while it is executed.
2. Analyze the risk: After listing the risks, check for the consequences of the risks we have mentioned. Also check what are the effects of them on our project goals.
3. Evaluate the risk: Find the risk level by multiplying the probability of each risk with its consequence. Arrange them in decreasing consequence form.
4. Take remedial actions: This action takes care of taking corrective actions for those risks who are having the maximum impact in our project.
5. Control the risk level: Once the remedial actions are taken, the state now produced had o be monitored and controlled for further variance.

Importance of risk management:
1. Proper risk mitigation can help the firm in maximizing the benefits and minimizing the unnecessary costs.
2. A risk adjusted firm will be on improved competitiveness level than its peers in market.
3. Through this, the firm will fetch more investors for expansion. Also, more loyal customers will be made.
4. All the above factors will help in Organic growth of the company.

jeff jeffy answered 1 year ago

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