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Risk management is a logical process or approach that seeks to eliminate or at least minimize the level of risk associated with a business operation. Essentially, the process identifies any type of situation that could result in damage to any resource within the possession of the company, including personnel, then take steps to correct factors that are highly likely to result in that damage.
At the core of effective risk management strategies is the desire to find ways to manage the degree of uncertainty that exists within any business enterprise. The first step in the process has to do with evaluating the utilization of resources as they current stand. This step involves understanding the logical flow of the production process and how it relates to the successful manufacturing of goods and services for sale to consumers. Once there is a solid grasp of how the organization functions, it is then possible to move on to refining that process with an eye toward managing that uncertainty factor.
Once the business model is understood, it is possible to identify specific risks that are present throughout the production process, including the delivery of goods and services to buyers. As those risks are identified, they are analyzed for ways to alter the process so that the end result is still achieved, but the degree of risk is minimized or removed altogether.
For example, risk management as it relates to the production process may include action items such as reworking the maintenance schedule for machinery to ensure there is less opportunity for a breakdown or malfunction. Employees may be required to wear safety goggles, gloves, or earplugs in order to ensure safety and thus minimize the chances of injury through company negligence.
Risk management not only seeks to minimize the potential for injury to employees, but also reduce the opportunity for money and other forms of finance to be abused or utilized ineffectively. By making sure that all resources are utilized in a manner that is safe, logical, and efficient, the profit margin for the company will increase and everyone associated with the company is motivated to continue production.
The actual process of risk management will vary from company to company. The focus may be on employee safety measures, or machinery maintenance. In other companies, this process may demand revamping policies and procedures in order to rid the company environment of potential risk situations. It normally requires the support of owners and the management team in order to refine the overall operation and achieve the lowest degree of risk possible.