RISK MANAGEMET TECHNIQUES

RISK MANAGEMET TECHNIQUES
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RISK MANAGEMENT TECHNIQUES
Business risk management techniques are strategies that are used to treat or manage any risks that occur as a result of the normal operations or abnormal circumstances in an organization. Upon identification of risks companies normally result in risk management techniques such as avoidance, mitigation, transfer, and acceptance. (Melissa, 2018).
Risk Avoidance
This is carried out when the business or organization is reluctant in engaging in operations that may result in potential risk. For example, a chain store may not set up an establishment in an insecure so as to avoid being robbed. As much as risk avoidance is a highly beneficial risk management technique, it mostly results in low revenue generation hence low profits (Melissa, 2018).
Risk Mitigation
Risk mitigation is the process of reducing or maintaining the impact of risks. This method is usually used for specific, unavoidable risks that are usually known and expected. This method is common in software development companies where they release their products in stages so as reduce capital risks that may be incurred in case of their product is faulty. If the risk is precisely mitigated, it may reduce the overall cost of the risk resulting in more profit (Melissa, 2018).
Transfer of Risk
Most organizations use this technique by paying premiums to an insurance company so as to protect them against a substantial monetary loss. Here, the risk is transferred from the primary company to the insurance company.

This method results in the generation of low profits since the premiums paid are usually costly than the risk or even the risk may not occur (Melissa, 2018).
Risk Acceptance
This process is mainly used by pharmaceutical companies since the profit to be realized surpasses the risk incurred. For example, the cost incurred in researching for a new drug is usually less than the revenue generation if the drug is introduced in the market (Melissa, 2018).
Risk identification is essential to a business since it creates the grounds for the risk management process that helps the organization to curb or prevent certain risks. Risk identification also plays a role in the capital budgeting process. The capital budgeting is the process of evaluating long-term investments and deem them fit to be pursued hence through risk identification an organization can determine the best long-term investments to invest in.

REFERENCES
Melissa, Horton. (2018, July 16). What are some examples of risk management techniques? Retrieved from Investopedia. https://www.investopedia.com/ask/answers/050715/what-are-some-examples-risk-management-techniques.asp