Principles of Risk Management

Risk Management is a broad field encompassing numerous specializations: Enterprise Risk Management, Financial Risk Management and Operational Risk management to name a few. While the tools and methods for measuring and treating exposure to risk differ somewhat by specialization, the principles of risk management are the same in all.

The principles of risk management are a set of practices utilized by business to manage its exposure to risk, reach its objectives and goals, and to guide its conduct to meet expectations and concerns of the public interest, labor relations, human safety, the environment, and the laws governing business practices.

The Principles of Risk Management are risk assessment and risk control. Where risk assessment identifies, quantifies and prioritizes exposure to risk, risk control manages exposure to risk on a continuous basis. Part of risk control, naturally, is an ongoing assessment of risk exposure that assures business its plans are correct for the most current risk climate.

The principles of risk management have been firmly established as an essential set of management functions. Clearly, assessing and controlling exposure to risk minimizes the adverse impact of risk on the organization's resources, earnings, and cash flows.

Principles of Risk Management: The Risk Management Assessment

Three key processes, cornerstones among the principles of risk management, comprise the risk management assessment. Identify exposure to risk; Analyze the risk, meaning measure the likelihood and severity of impact; Prioritize risk.

When exposure to risk has been identified, quantified and prioritized, treatments for the organization's exposure to risk can be devised.

Principles of Risk Management: Risk Control

Another key principle in risk management is Risk Control. Managing and controlling an organization's exposure to risk usually involves the following: risk mitigation, contingency planning and close managerial supervision of the combined risk management effort so that adjustments can be made to continually improve the efficiency of the endeavor over time and guard against untreated exposure.

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