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In: Economics

in a short essay , What are some limitations of the current risk assessment and risk...

in a short essay , What are some limitations of the current risk assessment and risk mitigation practices? for engineering economy class .

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Expert Solution

Introduction:-

On the Macro and Micro level as a whole, countries and companies both realize that there are associated risks in any operations and would therefore necessarily want elimination of the same as a whole also. Most of them therefore have dedicated teams in place to analyses the risk and take corrective measures even when the same is yet to happen.

The concepts of risk assessment and mitigation are interlinked, and in today's fast paced economic lives, are readily adopted across companies and countries alike to keep their profits in check and to allow for a more stable environment to exist for business.

That said, both have their fair share of limitations also which are as explained below.

Limitations of Risk Assessment and Risk Mitigation Practices:-

  • Costs of Implementation:-

Companies and countries alike, do not understand that risk assessment and mitigation comes at a significant cost to business. This cost can be utilized for other activities which might lead to higher profits. At most times, smaller companies for an example take rash decisions on risk management process which leads to them overspending at most occasions.

Such loss of capital tends to cause more damage to the company than the risk itself. Hiring a risk management team might not be profitable if the risk can be eliminated naturally.

  • Insufficient Data:-

Most companies tend to analyze risk on the basis of past information and activities which have already taken place. The resultant is that their preparedness tends to be on a limited amount of information which they have built their management upon.

Actual risk tends to be different than previous risks which the company has faced. The end result being inefficient risk assessment and mitigation practices.

  • Lack of Expertise:-

For proper risk management i.e. risk assessment and mitigation, expertise is an important subject which is readily required to eliminate risks. At most times, however the risk management teams comprise of people who own business than industry experts who tend to have higher knowledge and expertise. The end result is that the whole process becomes insufficient due to lack of knowledge among those who are operating the team respectively.

Change in Government Policies or Natural Uncontrollable Issues:-

The nature of the economy is such, that government policies are not static anymore, the government takes rapid measures to tackle ad hoc situations which may occur. As a result, risk management becomes ineffective because companies are not readily prepared for such happenings. Further natural causes such as landslides, cyclones etc. are beyond the control of any management team and tend to make the whole exercise not fruitful.

Please feel free to ask your doubts in the comments section if any.


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