Businesses of all sizes and kinds come with their share of risks. There is practically no business that doesn’t involve any risk. Besides without risks there would hardly ever be any reward. But how much risk must a business take is something that is decided by a risk management framework
Risk Management framework
A risk management framework is a set of ground rules that allow a business to be set on a perfect balance between taking appropriate risks and getting proportional returns. A perfectly followed risk management helps a business do exceptionally well. But if the risk percentage exceeds the business returns, it results in loss.
The risk management involves 6 crucial components which include
- Identification of risk
- Measuring the risk
- Risk mitigation
- Reporting and monitoring risks
- Governance of the risk management framework
We shall now consider each of the components
This is the first step in risk management of any business. It basically involves compiling all the risk factors that can potentially come into play in that particular business. These could vary depending on the business. The kind of risks may include: IT risk, operational risk in business, risk of regulations, other risks involving politics, legal aspects, risk involving credits and much more.
Measuring the Risk
This is one of the most important parts of the risk management framework. It is the measurement of risk that provides the correct information whether there are a group of risk factors involved or a solitary one. It measures exactly how big the risk is and if the business doesn’t work as expected then what is the amount of loss that will occur. And check if the business is capable of dealing with that kind of loss.
After having identified and measured the risks, it is then up to the company to decide which are the risk factors worth taking and which factors must be eliminated. It is possible to achieve risk mitigation by sale of assets, buying insurance or even diversification of business.
In case of binary trading, one can minimize the risk factors simply by opting for a trading robot like Infinity App.
Reporting and Monitoring risks:
To ensure the risk levels remain well within the optimum level it is extremely important to keep reporting and monitoring all the risks involved. How frequently one needs to report and monitor the risks may vary depending on the kind of risks involved or the kind of business.
Governance of Risk Management Framework
This is yet another important component. Having a risk management framework isn’t everything. To ensure that this framework is being brought into execution is also important.