Objectives of Risk Management - Edupristine (2024)

Objectives of Risk Management

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Objectives of Risk Management - Edupristine (1)

27, Jun 2022

Hey there! So good to have you back again. In this blog, we will answer the most frequently asked question, which is, what are the objectives of risk management? Before we deep dive, let us also understand what risk management is and how to build a successful career in the field of financial risk management. Let us quickly get started.

The concept of risk management is not new. It is a process that is carried out by organizations to identify, measure, monitor, and control risks faced by the organization. Business organizations face different types of risks, such as environmental risk, business risk, financial risk, political risk, and many more.

Objectives of Risk Management - Edupristine (2)

The most important objective for any business today is to enhance the safety of investors. The objective of risk management is to identify risk at an early stage and take the necessary steps or measures to mitigate its harmful effects. Historic information is analyzed to understand a trend and to foresee all future unfortunate events. The objectives are as follows:

  1. Identify:
    • The first and the most important objective is to identify various types of risks arising out of uncertainty.
    • Risk management helps in evaluating the source of risk in business and developing a proper understanding of
      the causes.
    • The Risk Manager is responsible for identifying areas where losses can take place and determining the best
      way to handle various risks.
    • Risk Managers collect information from different sources to identify minor and major exposures to losses.
    • One example is the misuse of the internet by employees using emails which can lead to the theft of
      confidential information.
  2. Measure:
    • The other objective is risk measurement. Once the above mentioned step is completed, the next step involves
      creating a system to measure the identified risks and quantify their potential impact.
    • Let us understand through an example. The probability of floods or drought is completely dependent on the
      weather conditions, which have a direct impact on the crops.
    • These important details will help farmers get an overview of the degree of risk involved with each variable
      along with the value that is at risk.
  3. Monitor:
    • The next risk management objective includes continuous monitoring once the first two steps are completed,
      which are the identification and measurement of risks.
    • Let us continue with the above example. It is very difficult to accurately predict the weather,
      significantly for longer periods.
    • Checking the weather forecast continuously is a form of risk monitoring. The farmer must also keep an eye on
      the market prices for the crops to monitor price risk.
  4. Control:
    • The objective of risk management is to control risks. When the potential risks are identified, measured,
      and monitored, then the final objective is to find out ways to deal with or control those risks.
    • Every business must consider the size of the risk and compare it with the cost of controlling it. It helps
      in evaluating whether the risk is worth spending time and money on.
    • Risks can be controlled through any of the four methods, which are transferring, treating, tolerating, and
      terminating.
  5. Transfer:
    • Did you know that risks can be transferred using contracts? Yes, this is possible through sales or insurance
      contracts.
    • Continuing with the earlier example, one option could be an insurance policy for crops against adverse
      weather conditions.
    • Another option is a sale contract which is usually suitable for high-value low probability risks.

Coming to the real-life events, when Russia invaded Ukraine in February 2022, companies that had close ties to Russia were unprepared. Many executives consider this event as a black swan event. Wondering what are black swan events? We have covered this topic in our previous blogs. For some, it is a grey rhino event. No matter how we classify it, the war in Ukraine is a high geopolitical risk that is still unpredictable.

Businesses face a lot of uncertainty which can lead to a possible collapse in confidence and an even higher risk of recession.

Objectives of Risk Management - Edupristine (3)

Expertise in risk management, data analytics, artificial intelligence, and other emerging technologies can help in mitigating the severe impacts of risk.

FRM course can help in building a successful career in the domain ofFinancial Risk Management. TheFRM coursecovers all the aspects of risk management in depth. To know more about theFRM course in IndiaandFRM course eligibility, feel free to contact our counsellors, who would be more than happy to assist you. All the best and happy learning.

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26, Jun 2018

Principles and Fundamental Concepts of Basic accounting

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04, Jun 2018

Know how to understand and interpret cash flow statement

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29, Mar 2018

All you want to know about Sensitivity Analysis

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ACCA Full Form

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25, Feb 2018

Finding and Removing Duplicates in Excel

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07, Feb 2018

Capital Budgeting: Techniques & Importance

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14, Jan 2018

Importance of Business Accounting for enterprises

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11, Jan 2018

Amalgamation Explained in detail

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08, Jan 2018

Working Capital Management

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30, Dec 2017

Statistical Functions in Excel

People usually have love-hate relationship with statistics. When you get your formulas right you are in love with it and Read More

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07, Dec 2017

Venture Capital

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02, Dec 2017

Financial Reporting

In any industry, whether manufacturing or service, we have multiple departments, which function day in day out to achieve organizational Read More

Objectives of Risk Management - Edupristine (126)

09, Nov 2017

Cell References in Excel

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24, Sep 2017

Costing Methods & Important Cost Terms

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25, Aug 2017

Balance sheet explained in detail

What is Balance Sheet? A balance sheet (also called the statement of financial position), can be defined as a statement Read More

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15, Jul 2017

Cash Flow Statement

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08, Jul 2017

What are the career options after Mcom

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07, Jun 2017

What is Standard Deviation?

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21, Apr 2017

Know how effective is CMA course compared to MBA in providing a dream job

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02, Mar 2017

ACCA Exam Structure and Pattern

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22, Feb 2017

Comparison of CPA course with other courses

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08, Feb 2017

Advantages and Application Process of FRM

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03, Jan 2017

An insight into OTC Derivatives

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03, Oct 2016

CPA Course Syllabus – Topics and Importance

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07, Jun 2016

CFA® Study Planner

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03, Jun 2016

CPA Course details, application fees and benefits of doing it

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31, May 2016

All Important About CFA® LEVEL 1 Syllabus

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All about Portfolio Management

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25, Nov 2015

Cost Management: Meaning, Techniques & Advantages

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19, Oct 2015

How to get into Big 4 Accounting Firms?

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13, Oct 2015

FRM Question Bank

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Top 10 Companies that hire CFA® Charterholders

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18, Aug 2015

Income Statement in detail

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12, Aug 2015

KPIs for Business Analysts

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Annual Report

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Capital Budgeting

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16, Jun 2015

Mergers and Acquisitions

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15, Jun 2015

Detecting Multicollinearity

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Analysis of Financial Statement of a Company

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8 Excel functions that every Data Analyst must know

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Duckworth-Lewis Method

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28, Feb 2015

6 Most Common Excel Errors

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23, Feb 2015

Rule Precedence in Conditional Formatting

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Types of Investment Banking jobs

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FRM Part 1 syllabus

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Ratio Analysis – Introduction

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Ratio Analysis – Classification of ratios and Liquidity Ratio

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Bootstrapping Solution

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Dell’s Leveraged Buyout: A Real-life Case Study

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Cash Flow Statement: Learn to create Cash Flow Statement Template in Excel

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CFA® Program from ICFAI (India) Vs CFA® Program from CFAI (US)

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