Before going through the topic, first of all, understand what is risk management

Risk Management – It is the process of assessing and identifying risks that make a plan to lower or control risks with their negative effects on a company. Risks may come from several places including natural disasters, cybersecurity threats, legal liability, accidents, and many more. Risk management involves analyzing, accepting, identifying, or mitigating uncertainty in investing decisions. It can occur if a fund manager or an investor examines and attempts to measure the potential for losses in an investment.

Risk management is also the ongoing process of examining, evaluating, identifying, and treating loss exposures, financial resources, and monitoring risk control to reduce the negative effects of loss. There are several examples of potential risks such as cyberattacks, security breaches, natural disasters, data loss, system failures, and many more. An effective risk management process will help in identifying the risks that are big threats to a company and offer guidelines to deal with them.

Steps of Risk Management – There are 3 steps of risk management are risk assessment & analysis, risk evaluation, and risk treatment which are discussed below –

1. Risk Assessment & Analysis – It is the first step of risk management that evaluates a company’s exposure to uncertain events, which may affect its daily operations, and estimates the losses those actions could have on the revenue and reputation of a company. Analyzing and effectively assessing the company’s risks helps in improving decisions, optimizing and making operational efficiency, and protecting assets to save time, resources, and money.
2. Risk Evaluation – A risk evaluation should take place after the risk management has been completed. A risk evaluation compares potential risks or threats against risk criteria that a company has previously established. Risk criteria may involve associated benefits and costs, system malfunctions, socio-economic, and legal requirements.
3. Risk Treatment & Response – It is the final or last step of the risk management process. Risk treatment is the implementation of procedures and policies, which will help to reduce or avoid risks. It also extends to risk financing and risk transfer.