One of the important topic in financial is risk management. It is important to know the risks that exist in your financial management. Risk management objective is to minimize the loss and maximize profits. It used to balance risk, return and growth. We must know how to handle risk in our life especially in our finance.
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Definition of Risk Management
Based on investopedia, risk management is the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action given their investment objectives and risk tolerance. Inadequate risk management can result in severe consequences for companies as well as individuals.
Why must manage risk
There are some tips on risk management
1. You must identify the risk. Type of risk in financial from counter party credit, legal liabilities and market price volatility. The categories include credit, legal, regulatory, market and reputational.
2. Make sure you’ll be aware in quantifying, identifying and mitigating risks.
3. Look at yourself. Calculate your budget and don’t take more than you can afford.
Taking risk is important to be a success person but we must know the border. Without any knowledge it will make you suffered. Risk appetite is different among the situation, value, etc.
Process of Risk Management
The risk management process is simple.
1. Identify the risk as a group. List the things that might inhibit your ability to meet objectives.
2. Identify the Causes. Try to identify what might cause these things to occur.
3. Identify the Controls. Identify all the things that you have in place that are aimed at reducing the risk from happening in the first place.
4. Establish your likehood and consequence descriptors.
5. Establish your rating descriptors such as low, moderate, high or extreme needs.
6. Add other control might be whether they can be afforded.
7. Make a decision once the above process is complete.
8. Monitor and review all risks.
That’s some of the basic information about risk management that we could learn and follow.