A business venture is essentially a kind of gamble as no business is immune to risks. A risk is the possibility of loss that badly affects the business. Every business is prone to one or more kinds of risks: loss of expertise by accidental deaths, damage to commercial property, and even legal matters that may sever the reputation etc. Some risks may be fairly easy for the managers to tackle while others are more difficult to defuse.
All the risks that can pose possible threat to a business are broadly divided into two types: pure risks and speculative risks. Pure risk is the possibility of a disaster like fire that, if it occurs, can cause loss but its absence or non-occurrence does not bring any profit to the business. Pure risks are hard to predict and escape. A speculative risk on the other hand prompts people to go for a business venture because it also brings profit in case of success, loss of course in case of failure. The recording and marketing of a new artist’s album by a record company is an example of speculative risk. In case the album goes hit, the company makes profit; otherwise a loss results. Speculative risks can be avoided by careful decision-making.
We can define a
risk management consultant as the supporting the process of reducing the threat of loss due to uncontrollable events. It is an integral element of all successful businesses.
Protection against Risk There are four main types of protective strategies against risks in business. These are:
* Avoiding Risk
* Absorbing Risk
* Minimizing Risk
* Insuring against Risk
Consider the case of a publishing company that ships a large number of its books to bookstores in another state by means of a truck. The possibility that the truck may crash and burn before it delivers the books is a pure risk to the publishing company. As part of its
risk management strategy the publishing company can employ any one or a combination of these tactics. To fulfill their needs, they can also look at posting their
risk management jobs online.
The company can entirely avoid the risk of loss by requiring customers to purchase copies of books at the press rather than choosing to deliver them to bookstores. Once the copies are sold, the company is out of the threat of risk. Another way the company may manage the risk is by absorbing the possible loss e.g. by setting aside funds to make up for the cost of the books lost in the crash. The company could also try to minimize the risk of the crash. This can be done, for example, by carefully screening the records of truck accidents of several years along the same road and taking care of any threatening factors that have been responsible for the accidents in the past.
Finally, the publishing company may choose to buy an insurance policy that would cover at least some cost of the book if they came to be lost during such an accident. Insurance is an important element of risk management in businesses. However, it is not always the best choice and it is not available for all kinds of losses.
Labels: risk management
