What is Risk Management?

Risk management is one of the four major areas of responsibility of a CFO in a business and it includes the following functions:

  • Internal Controls
  • Treasury Management
  • Insurance Programs
  • Working Capital Optimization
  • Business Process Optimization

But really… what is Risk Management?

Risk Management

Decisions are routinely made in business to accept risks or to reduce vulnerabilities by mitigating the risk or implementing cost-effective controls.  Risk management is the process of identifying the risks in a business, analyzing exposure to the risk and determining how best to handle the exposure.  Risk management is not the elimination of risk.  Identified risks are reduced, mitigated or accepted based on the assessed level of risk and the cost effectiveness of reducing or mitigating it.   Risk management is an important function in business as risks which are not identified and assessed become risks which are unintentionally accepted by the business.  Unintentionally accepted risks may prove to be costly mistakes.  While the level of risk management required in a business varies based on the nature and complexity of the business, risk management services include:

  • identifying business risks and ensuring the exposures are adequately protected against
  • oversight of business processes to ensure appropriate checks and balances are in place
  • ensuring liquid assets are working in favor of the business, which can easily reduce the need for precious capital.

In addition, having a program to continuously review business processes to update for changing business conditions, or streamline for cost savings and improved customer service, will assure that your business is operating in an optimum manner.