Realities of Risk Management1706952
Through the use of risk management, managers hope to identify, analyze, control, avoid, minimize, or get rid of the dangers that can harm their company. There are many mistakes that are made in risk management and it is essential for companies to be aware the them. One error is the use of poor governance. Getting effective governance leads to openness and commitment which allows risk management to function successfully. If a company lacks leadership, it will undermine the risk management capabilities. It is important to have discipline when involved in risk taking, particularly throughout times of fast growth and favorable markets. There must be limits, checks and balances, and monitoring involved.
Another miscalculation that managers have is following the "herd mentality". When a company has a large quantity of activities, particularly in the areas of mortgage brokers, lenders, mortgage insurers, investment bankers, and institutional investors, it is simpler for a manager to ignore the risks. When one manager sees another manager disregarding dangers, they may have the tendency to adhere to suit. In order to avoid this, everybody should be made conscious of the company's financial situation.
Misunderstanding the "if you can't measure it, you can't handle it" mindset can be a blunder in the waiting. Many managers use this mindset as an excuse so that they do not have to fully understand or acknowledge the risks involved. An additional faux pas managers make is accepting a lack of transparency in high-risk areas. Many managers make decisions with a lack of information. It is important for managers to see the whole image before they make choices. Executive management must create risk awareness throughout each aspect of the business.
A massive oversight in some companies is when they do not integrate risk management with technique setting and performance management. When forming a strategy, it is essential to incorporate all the risks involved. If risks are left out, managers will be left with unrealistic strategic objectives. Thus, leading to a strategy that can deteriorate the company's competitive position, cause problems in the changing business environment, and trigger the business to shed value.
An additional oversight that can have a drastic effect on managing risks is not involving the board in a timely manner. If a problem arises, the board should be notified as soon as possible and not after the fact. It is important to familiarize the board with the organizations risk profile.
There are many dangers involved when operating a business. Managers require to behave in a manner that will benefit their company and they require to understand the risks involved in the business and be able to approach them in a realistic manner.
