Question

Discuss the meaning of Risk Management. Identify and briefly describe the 4 basic techniques available to the risk manager for dealing with pure risks and give an example of each.

Answer 1

Risk management is a process of identifying , controlling , avoiding, minimizing and eliminating the threats in an organization. These threats can be anything financial difficulty, legal matters, accidents and natural disasters.

The 4 basic techniques of risk management are:risk control is important for the long term sustainability and profitability of the company.

• Avoidance: The best technique for loss control is avoidance. This technique avoids the loss and if the company is successful in a voiding the loss then there is probability that the company will suffer a 0 loss. The first of all the risk control techniques in avoidance of the risk. For example in order to avoid a loss, a company will not undertake a project at all.
• Loss prevention : This technique limits rather than eliminates the loss. Instead of completely eliminating the risk, this technique accepts the risk but limits it. There is a chance of goods being stolen in the warehouse, installing appropriate security , cameras and secured storages and ensure loss prevention.
• Loss reduction : is a technique that no only accepts the risk but also accepts that loss might occur due to the risk. This method helps to minimize the loss. In case there is risk that goods may catch a fire in the warehouse, so installing appropriate fire fighting equipments in the warehouse ensures loss reduction.
• Diversification : This technique allows that resources are allocated to multiple to multiple products and services and to different industries. For example, the company does not concentrate on a single line of business , they invests in consumers goods, technology goods, luxurious goods so that they can reach a wide base of consumers.