Definition of Risk Management
Definition of Risk Management
Risk Management is the process of finding, evaluating, and controlling uncertainties that could harm a business or organization. It involves identifying potential problems (like financial losses or operational failures), understanding how likely they are to happen and how severe their impact could be, and then taking steps to reduce or manage those risks. The goal is to protect the organization’s goals, resources, and stability by making informed decisions to avoid, mitigate, or prepare for risks.
Key Steps in Simple Terms:
Identify Risks: Figure out what could go wrong (e.g., loans not being repaid, system failures, fraud).
Assess Risks: Determine how likely these risks are and how badly they could affect the organization.
Control Risks: Take actions to minimize the risks, like setting rules, buying insurance, or avoiding risky activities.
Monitor Risks: Keep checking and updating plans to stay prepared for new or changing risks.
Definitions by Experts and Institutions:
Schroeck (2002):
"Risk management is an active, strategic, and integrated process that involves both measuring and reducing risks. Its ultimate goal is to maximize the value of a bank while minimizing the risk of bankruptcy."Basel Committee on Banking Supervision:
"Risk management is the process of identifying, assessing, and controlling risks to ensure that a bank operates within its risk appetite and regulatory requirements."COSO (Committee of Sponsoring Organizations of the Treadway Commission):
"Enterprise Risk Management (ERM) is a process designed to identify potential events that may affect the organization and manage risks to be within its risk appetite, providing reasonable assurance regarding the achievement of objectives."ISO 31000 (International Organization for Standardization):
"Risk management is the coordinated activities to direct and control an organization with regard to risk. It involves understanding risks, making decisions to address them, and continuously monitoring and improving the process."McKinsey & Company (2015):
"Risk management is about creating a culture where risks are understood, assessed, and managed proactively to protect the organization and support its strategic goals."
This process helps organizations stay safe, stable, and successful even when facing uncertainties.
