Risk Management Process
It consist of:
o
Identify all significant losses.
o
Evaluate the potential frequency and severity of loss. It
includes the evaluation of maximum loss.
o
This value is known in pure risk management as “the
maximum probable loss” and in financial management as “value at risk”.
o
Implement risk management methods chosen.
o
Monitor the performance and suitability of risk
management.
1-Loss control
2-Loss
financing
3-internal risk reductions
Loss control and internal risk reductions
used as decision making tool in investment or forgo investment in order to
reduce the expected losses.
1-Loss
control consists of:
o
Reduce the level of risk activity.
o
Increase precautions.
E.g.
routine inspections of passenger bus will not only reduce the chances of
expected accidents loss (reduce the level of risky activities) and installing
devices like fuel alarming system, current alarming system of engine etc.
(increase precautions).
2-Loss
financing are consist of
o
Hedging
o
Retentions
o
Insurance
o
Other contractual risk transfer (like outsourcing of
activities)
4-Internal
risk control consists of:
Diversifications like investment in different
stocks and shares to reduce loss
Investment in
information like installing of devices and investment in R&D. E.g.
investment in market research to advance know about market trends and demand of
goods and services.
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