Risk Management

Essay by pakinderCollege, UndergraduateA+, April 2007

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Risk is the possibility of suffering loss. Risk management is a process of measuring or assessing risk and then developing strategies to manage or control those risks. Once risks have been assessed, a prioritization process is needed to determine the risks with the greatest loss and the greatest probability of occurring and/or recurring so those may be handled first, and risks with lower probability of occurrence and lower loss are handled next. This is determined by the "Law of Large Numbers". The Law of Large Numbers is simply that situation outcomes become more predictable as the number of situations increase. To implement this prioritization may be a difficult course of action. Balancing between risks with high probability but lower loss against risks with high loss but lower probability of occurring can often be complicated.

If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not likely to occur.

Risk Management also involves the difficult task of allocating resources properly. Spending too much time assessing and managing unlikely risks can divert resources. Resources spent on risk management may instead have been spent on more profitable activities for the district, but without managing those risks, whatever the costs, the effects of those risks may ultimately cost the district more than the deterring actions to make those risks preventable or less likely.

The danger of not recognizing the importance of risk management can be mighty. It leaves the management without insight into what could go wrong; consequently more resources may be spent correcting problems that could have been avoided sooner. Catastrophic problems may occur without warning and without the possibility of recovering the situation in a favorable manner for the district. Decisions may be made without complete or adequate information of future...