Risk Management: INSU 201 Introduction To Risk & Insurance

Risk Management
INSU 201 Introduction to Risk & Insurance
Daily life risk management: Risk is defined as the effect of uncertainty on objectives (whether positive or negative). Risk management can therefore be considered the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Our daily lives and business operations are filled with risk. On a personal level we take risks crossing the road, travelling by train and making investment decisions. From a business perspective, risk is managed at many levels - operational, marketing, legal and financial. Traditionally, much risk inherent in a business operation has been managed through insurance. Daily life risks can vary from waking up in the morning and falling from the bed, to taking a shower and slipping or even driving to work and risk a car accident. But how we manage those risks are different from one to another. Therefore, risk management has a huge impact on our daily routines. Risk assessment is important before risk management. We have to assess what are the risk factors in our daily lives, thereafter learn to manage them. Risks cannot be totally, but with a good risk management techniques the damage could be less extreme. A simple example, when you are driving your car you are risking a car accident, the car accident cannot be avoided neither can it be predicted, but you can lessen the damage caused by it, merely by buckling your seat belt. That is a simple decision we make without realizing it is under the category of risk management. By realizing the risk of an accident you are assessing the risk and the harm it may cause, and by buckling your seat belt you are managing the risk.
Risk management and its effects on Business and Economics: A risk is any uncertainty about a future event that threatens your organization's ability to accomplish its mission. Business is a tradeoff between risk and return. There can be no risk-free or zero risk-oriented business. This is due to the fact that the concept of a "project" implies effecting current investment, for a future activity, and a future gain after the "project-construction period" is over, referred as the "development period". Changes in the intervening period can be either ways. When such changes are adverse, the investment in the project comes to grief even before the project is completed. There can also be several unexpected developments both internal and from the external environment that can render your project calculations go wrong. Risk in its practical definition, includes both threats that can materialize and opportunities, which can be exploited. This definition of risk is very significant today as the current business environment offers both challenges and opportunities to organizations, and it is up to an organization to manage these to their competitive advantage. Risk management is a discipline for dealing with the possibility that some future event will cause harm. It provides strategies, techniques, and an approach to recognizing and confronting any threat faced by an organization in fulfilling its mission. Risk management is not about being 'risk averse' and is not aimed at avoiding risks. Its focus is on identifying, evaluating, controlling and "mastering" risks. Risk management also means taking advantage of opportunities and taking risks based on an informed decision and analysis of the outcomes. Organization in the process of financial intermediation are confronted with various kinds of financial and non-financial risks such as credit, interest rate, foreign exchange rate, liquidity, equity price, commodity price, legal, regulatory, reputation, operational, etc These risks are highly interdependent and events that affect one area of risk can have ramifications for a range of other risk categories. Thus, top management of an organization should attach considerable importance to improve the ability to identify measure, monitor and control the overall level of risks undertaken. The economy of a country goes through daily changes throughout the year; it may vary from low risks to high risks, and depending on organizations and their
preparation for risk management, whether it is a fire, a natural disaster or fraud, the outcome of which has an impact on the economy. For example, a few years ago Saudi Arabias stock market crashed due to fraud and poor risk management both in a personal and organizational scale. That resulted in a crash in the economy and human capital. Organizations went bankrupt due to lack of risk management programs. After this crisis, the Saudi economy went through another international economic crisis last year, but many organizations managed to sail through it smoothly with less financial damages than others, due to implementing risk management techniques after the first crisis. And although Saudi Arabia was the least effected country from the worldwide economic crisis, still it faced damages caused by lack of preparation. Organizations whether private or public and human capital, are the core of each countrys economy. Therefore, avoiding risks and managing it properly it not only beneficial for the company or the person, but also affects the economy as a whole. When we have risk management teams in each organization, with set goals and techniques to deal with crisis such as natural disasters, fire and death, it helps reducing the negative impact on the economy of the country. In addition, when people learn to avoid risks in their daily life, and have risk management basics, they learn to have a better quality of life, they learn how to manage, control, evaluate and lessen the risks they face every day whether it is a financial or personal risk.

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INSU 201 Introduction to Risk & Insurance

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