Risk Management Simplified

"Risk management is a central part of any organization's strategic management. It is the process whereby organizations methodically address the risks attaching to their activities with the goal of achieving sustained benefit within each activity and across the portfolio of all activities." (IRM, 2002, pg 2) In other words, each time we do a new activity or invest our money we are taking a risk. We can weigh these risks versus our rewards.

After understand what risk is we deal with risk everyday. We can take a risk at driving 80 m.p.h. down the freeway or we can get in the right "slow" lane and the speed limit at 70 m.p.h. What risk are we willing to take to get somewhere quicker? We can choose to have a $250 deductible on our car insurance or for $4.00 less in a 6 month period, we can choose to have a $500 deductible. (Costco Car Insurance, 2005) For saving $4.00 in a 6 month period we can take the risk of having to pay an additional $250 on a deductible. In my opinion not worth the risk.

When dealing with a business venture, we can take a more formal approach in dealing with risk. Though risk analysis, risk identification, risk description, risk estimation and then by risk evaluation. (IRM, 2002, pg 4) The reason we do this is to: provide a framework to ensure future activities is consistent and in a controlled manner. (IRM, 2002, pg 4) It improves our decision making, planning and prioritization. (IRM, 2002, pg 4). An example of a business venture that would require us to assess a risk could be expanding a current product line, or investing purchasing a new building.

When dealing with risks, we must assess each one carefully to ensure the risk is worth the reward.

References

IRM, 2002, "A Risk Management Standard" Published by AIRMIC, ALARM, IRM: 2002, Retrieved on November 14, 2005, from The Institute of Risk Management (IRM) website at http://www.theirm.org/publications/PUstandard.html English Version.

Costco Car Insurance, November 9^th, 2005, Anon customer service rep, personal car quote over the phone.