|Type of paper:||Essay|
|Categories:||Risk management Strategic management|
Risk management strategies are very significant in an organization as they determine the performance of that particular organization. Some of these strategies that will be discussed in this paper include avoidance, reduction, retention, and risk transfer, either by an insurance organization or through a contract (Blackman, 2015).
Risk avoidance is the first strategy that influences organization performance to a greater extent. Risk avoidance involves the taking of the necessary steps that are relevant in ensuring a risk does not completely occur (Snedaker & Rima, 2014). For instance, an insurance organization waits for an event to occur so that they can pay somebody. However, if the insuring organization does take a step in mitigating the threat, no cost would be incurred. Applying this to an organization, it is vivid that an organization should analyze all possible threats and cut them off before they become a menace to the organization. Costs incurred with the risk would also be mitigated which would, in turn, improve the organization performance by allocating of the resources in another crucial sector of the business. As a result, it is evident that risk avoidance leads to avoidance of exposure to unnecessary risks. This strategy might be costly, but it is paramount in reducing downtime and recovery costs efficiently.
The organization performance of a company can be greatly affected by the growing business risks which raise the alarm to a majority of business owners today. However, several reduction techniques of risks are available that would make the mitigation of the impact of the growing risks possible, and ensure the organizational performance of any business is maintained. Firstly, the internal controls of an existing system should be reviewed, and it's necessary for the provision of balances and checks of every section of the organization (Carol, 2017). This strategy prevents an operational risk that affects the responsibility of many employees, leading to decreased organizational performance. Secondly, risk reduction involves the development of a risk management plan. This plan acts as a mitigation tool that would identify the possible solutions to emerging risks and how these risks could be managed. In doing this, the performance of an organization would be greatly maintained, leading to efficiency in risk abolishment.
Risk retention is the third significant strategy in risk management. Risk retention can be defined as the act of the reservation of a fund usually called the self-insurance reserve fund, that involves settling of losses incurred as a result of risks rather than turning to hedge instruments and insurance companies for help. However, this technique of risk management is only used when the cost incurred from the losses as a result of the risks faced by an organization are less as compared to the costs incurred in ensuring an organization against the same risks (Bragg, 2018). Every organization should strive in ensuring that they minimize their costs of operation as much as possible to acquire maximum profits from the activities of the organization. Increased profits lead to motivation of employees which in turn influences their performance in any given organization.
Risk transfer is the last strategy discussed in this paper. Risk transfer can be done in two ways: contractual risk transfer and risk transfer by an insurance organization. Contractual risk transfer involves the transfer of the risk to another entity's risk program to ensure that the cost of risks incurred by an organization is significantly reduced (Boggs, 2015). An organization, in this case, might engage a sub-contractor where the latter is made responsible for the risks faced by the organization. The insurance way of risk transfer is the most common type of risk mitigation strategy used by a majority of businesses today. An insurance organization accepts to indemnify an organization for a quantified amount of loss felt only if the organization agrees to pay a set of the premium set by the insurance organization (Kent, 2019). It is evident that many organizations have boosted their performance using this strategy as they can venture into any promising business activity without the fear of losing everything. Compensation by insurance organizations, therefore, ensures that organizations can try out new business opportunities, which leads to significantly increased organization performances.
Blackman, A., 2015. Effective Risk Management Strategies. [Online] Available at: https://business.tutsplus.com/tutorials/effective-risk-management-strategies--cms-22887[Accessed April 2019].
Boggs, C. J., 2015. Contractual Risk Transfer: The Basics. [Online] Available at: https://www.insurancejournal.com/blogs/academy-journal/2015/03/16/360274.htm[Accessed April 2019].
Bragg, S., 2018. Risk retention. [Online] Available at: https://www.accountingtools.com/articles/2018/1/26/risk-retention[Accessed April 2019].
Carol, L., 2017. Three Ways to Reduce Organizational Change Risk. [Online] Available at: https://www.erminsightsbycarol.com/three-ways-reduce-organizational-change-risk/
Kent, J., 2019. Insurance and the Transfer of Risk. [Online] Available at: https://consumer.findlaw.com/insurance/insurance-and-the-transfer-of-risk.html[Accessed April 2019].
Snedaker, S. & Rima, C., 2014. Risk Mitigation Strategy Development. [Online] Available at: https://www.sciencedirect.com/topics/computer-science/risk-avoidance[Accessed April 2019].
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