2.5 UNDERSTANDING RISK MANAGEMENT
2.5.1 SCOPE AND OBJECTIVES
Risk management introduces the modern theory of planning or
decision making under uncertainty that is contingency planning (S.Schwartz,
2001).managers in the past have always use financial ratios is quantifying
risks. Decision making involve making decision now about what will happen in
the future. In this light, decisions in the future may turnout to have a
negative effect on actual result or vice-versa or actual results can prone to
be very different from expected results. Risk management is therefore concerned
with the identification of potential problems and eliminating or reducing the
damage which they may result in if the problem materialises.
The objectives of risk management is an efficient planning for
risks and this therefore formally addresses the identification, which may alter
the implementation of company's policy (ies) yet towards achievement of company
objectives. Risk management is a proactive approach rather than a reactive
approach.
2.5.2 THE ROLE OF RISK MANAGEMENT
Risks management is a staff function; in a management
environment it helps an organisation in the following ways:
a- It identifies, captures, processes and communicates risks
management information to management concerning the operation of the
organisation.
b- It helps to analyse the nature of the cost associated with
the management of risks.
c- It allows the management team the opportunity to achieve
its objectives as planned. In a company environment where risks management is
absent, management plans is disrupted by the occurrence of some unseen
events.
d- It disposes management of all situation of risks which may
prevent a company of achieving its objectives
e- It is therefore presented with careful planning, arranging
and controlling of operations and resources in order to minimise the impact of
risks.
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