What is Risk Management? | Risk Management process

00:10:54
https://www.youtube.com/watch?v=IP-E75FGFkU

Summary

TLDRThe video explains risk management, detailing its definition, processes, approaches, types, importance, and limitations. It outlines the risk management process in five steps: identifying, analyzing, prioritizing, treating, and monitoring risks. Various approaches to risk management are discussed, including avoidance, reduction, sharing, and retention. Risks are categorized into business, non-business, and financial types. The importance of risk management is highlighted, emphasizing its role in decision-making, safety, and project success. Limitations of risk management are also addressed, such as overconfidence in risk models and the need for skilled analysts.

Takeaways

  • 🔍 Understanding risk management is crucial for businesses.
  • 📊 The risk management process involves five key steps.
  • ⚖️ Different approaches to risk management can be applied.
  • 📈 Risks can be classified into business, non-business, and financial types.
  • 🛡️ Risk management is essential for project success and safety.
  • ⚠️ Limitations of risk management include overconfidence in models.

Timeline

  • 00:00:00 - 00:05:00

    The video introduces risk management, explaining its significance in various business contexts. It outlines common risks such as fire damage, accidents, and defective products, emphasizing the importance of understanding these risks for better investment decisions. The risk management process is detailed in five steps: identifying risks, analyzing them, prioritizing, treating, and monitoring risks, which collectively help organizations manage uncertainties effectively.

  • 00:05:00 - 00:10:54

    Following the risk management process, the video discusses various risk management approaches, including risk avoidance, reduction, sharing, and retention. It categorizes risks into business, non-business, and financial types, highlighting the importance of risk management in ensuring safety, project success, and informed decision-making. However, it also addresses limitations, such as the potential for unexpected outcomes from decisions, the need for skilled analysts, and the false sense of security that risk models can create.

Mind Map

Video Q&A

  • What is risk management?

    Risk management is the process of identifying, analyzing, and accepting or mitigating uncertainty in investment decisions.

  • What are the steps in the risk management process?

    The steps are: 1) Identify the risk, 2) Analyze the risk, 3) Prioritize the risk, 4) Treat the risk, 5) Monitor the risk.

  • What are the types of risk management approaches?

    The approaches include risk avoidance, risk reduction, risk sharing, and risk retention.

  • What are the types of risks?

    Risks can be classified into business risk, non-business risk, and financial risk.

  • Why is risk management important?

    It helps in making informed decisions, ensuring safety, enabling project success, reducing unexpected events, and guiding decision-making.

  • What are the limitations of risk management?

    Limitations include potential overconfidence in risk models, the need for skilled analysts, and the risk of creating a false sense of stability.

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    in this video
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    you are going to learn risk management
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    topics i have discussed in this video
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    are what is risk management
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    risk management process risk management
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    approaches
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    types of risk management importance of
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    risk management
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    and limitations of risk management
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    let's start the video before learning
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    about risk management
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    first we should know what the risk is
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    in every business from the small corner
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    store to the large manufacturer
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    there are common challenges with
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    insurance claims
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    and risk in general fire can damage
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    buildings
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    someone could slip and fall vehicle
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    accidents often occur
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    or losses can occur as a result of
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    defective products
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    a good sense of risk in its different
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    forms can help investors to better
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    figure out the opportunities
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    trade-offs and costs associated with
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    different investment approaches
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    in the financial world risk management
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    is the process of identification
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    analysis and acceptance or mitigation of
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    uncertainty in investment decisions
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    essentially risk management occurs when
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    an investor or fund manager analyzes
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    and attempts to quantify the potential
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    for losses in an investment
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    and then takes the appropriate action
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    given the fund's investment targets and
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    risk tolerance
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    risk management process
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    there are five necessary steps that are
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    taken to manage risk
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    we consider these steps as the risk
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    management process
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    it begins with identifying risks
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    evaluates risks
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    then the risk is prioritized a solution
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    is implemented
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    and finally the risk is controlled
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    let's discuss each step separately
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    1. identify the risk
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    the first step of risk management is to
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    identify the risks that the business is
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    discovered to in its operating
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    environment
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    there are many types of risks including
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    legal risks
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    environmental risks market risks
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    regulatory risks and much more
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    it is important to identify as many of
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    these risk factors as possible
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    if the organization has employed a risk
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    management solution
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    all this information is included
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    directly in the system
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    the advantage of this strategy is that
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    these risks are now transparent to every
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    stakeholder in the organization with
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    access to the system
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    [Music]
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    2. analyze the risk
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    once your team identifies potential
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    problems
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    it's time to go a little deeper how
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    likely are these risks to take place
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    and if they take place what will the
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    consequences be
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    during this step your team will examine
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    the probability and fall out of each
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    risk
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    to choose where to focus first factors
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    such as possible financial loss to the
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    organization
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    time lost and severity of impact all
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    play a part in precisely analyzing each
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    risk
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    3. prioritize the risk
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    after analyzing the risks prioritization
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    begins
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    rank each risk by factoring in both its
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    possibility of happening
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    and its potential impact on the project
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    this step gives you a comprehensive view
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    of the project at hand
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    and pinpoints where the team's focus
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    should lie
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    it'll help you identify useful solutions
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    for each risk
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    this way the project itself is not
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    interrupted in ways during the treatment
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    stage
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    4. treat the risk after prioritizing the
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    risks
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    develop your treatment plan while you
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    can't expect every risk
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    you should have set up the previous
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    steps for the success of your risk
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    management process
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    starting with the highest priority risk
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    first task your team
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    with either solving or at least reducing
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    the risk so that it's no longer a risk
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    to the project
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    effectively treating and modifying the
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    risk also means using your team's
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    resources properly without hampering the
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    project in the meantime
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    as time goes on and you develop a larger
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    database of past projects and their risk
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    logs
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    you can expect potential risks for a
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    more proactive rather than reactive
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    approach for more efficient
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    treatment 5.
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    monitor the risk transparent
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    communication among your team and
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    stakeholders is crucial for the ongoing
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    monitoring of potential threats
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    risks need to be continuously monitored
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    to make sure that risk mitigation plans
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    are working
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    or to keep you aware if a risk becomes a
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    greater threat
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    let's discuss some risk management
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    approaches
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    after the company's exact risks are
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    found and the risk management process
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    has been applied there are several
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    strategies companies can take to
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    treating different risk
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    first approach is risk avoidance
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    risk avoidance involves stopping and
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    avoiding any activities that could lead
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    to a risk
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    risk reduction risk reduction is focused
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    on actions that will reduce the
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    probability of a risk occurring or the
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    impact of a risk
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    this is done by adjusting particular
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    aspects of an overall
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    project plan or organizational process
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    or by scaling down its scope
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    risk sharing risk sharing is when an
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    organization will transfer or share part
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    of the risk with another organization
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    an example is outsourcing manufacturing
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    or customer service functions to a third
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    party risk retention
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    risk retention occurs when risks have
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    been evaluated
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    and the organization decides to accept
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    the potential risk
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    no action is taken to decrease the risk
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    but a contingency plan may still be put
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    in place
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    types of risk management
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    widely risks can be classified into
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    three types
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    business risk non-business risk and
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    financial risk
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    business risk business enterprises take
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    these types of risks themselves in order
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    to increase shareholder values and
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    profits
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    for example companies offer high cost
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    risks in marketing to introduce a new
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    product
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    in order to gain higher sales
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    non-business risk these types of risks
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    are not under the control of firms
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    we can term risks that arise out of
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    political and economic imbalances as
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    non-business risk
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    financial risk financial risk as the
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    term refers to the risk that includes a
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    financial loss to the firms
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    financial risk arises because of
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    instability and losses in the financial
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    market caused by movements in stock
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    prices
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    currencies interest rates and more
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    importance of risk management
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    to highlight the importance of risk here
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    are some reasons all employees should
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    care about risk management
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    1. everyone should manage risk
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    as most business people know well
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    sometimes the risk is necessary
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    in order to achieve success the purpose
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    of risk management is not to wipe
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    out all risks it is to decrease the
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    negative consequence of risks
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    by working with risk managers employees
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    can make smart decisions to prevent
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    risks and improve the chance of being
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    rewarded
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    2. makes jobs safer
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    health and safety are integral parts of
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    a risk manager's role
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    they use data analysis to identify
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    damages and
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    injury trends then implement strategies
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    to stop them from occurring again
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    this benefits employees in physical work
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    environments
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    such as construction
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    3. enables project success
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    risk managers help employees from all
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    departments
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    succeed with their projects just they
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    have to evaluate risks and
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    implement strategies to maximize
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    organizational success
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    it can also apply to individual projects
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    if something goes wrong there will
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    already be a strategy in place to handle
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    it
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    for reduces unexpected events
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    most people don't like surprises
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    specifically when it has an
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    organizational impact
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    a risk manager's goal is to find out all
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    possible risks and then work to prevent
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    them
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    it's impossible to figure out every risk
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    scenario and address them all
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    but a risk manager makes unpleasant
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    surprises less likely and serious
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    [Music]
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    5. guides decision making
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    decision making is a difficult process
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    especially when making
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    important choices that will have a large
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    impact on future progress
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    risk management data and analytics can
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    guide employees in making wise
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    strategic decisions that will help to
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    fulfill organizational objectives
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    let's move on to the limitations of risk
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    management
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    1. adopting a decision throughout the
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    entire project that was intended for one
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    minor risk aspect can lead to unexpected
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    results
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    2. analyzing past data to identify risks
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    requires highly trained people
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    these individuals may not always be
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    elected to the project
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    3. risk models can provide organizations
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    with the false belief that they can
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    assess and regulate every possible risk
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    this may cause an organization to ignore
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    the possibility of novel or
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    unpredictable risks
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    4. create a fake sense of stability
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    value at risk measures focus on the past
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    instead of the future
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    therefore the longer things go smoothly
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    no matter how better the situation looks
  • 00:10:34
    unfortunately this makes a downturn more
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    likely
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    if you want to read in details or
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    download the pdf
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Tags
  • risk management
  • risk assessment
  • investment
  • business risk
  • financial risk
  • risk analysis
  • risk mitigation
  • project management
  • safety
  • decision making