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Importance Of Risk Management

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Protection of Employees and Financial Costs in Risk Management

Effective risk management is important in providing a way for the identification and evaluation of a wide range of possible events and scenarios and how the scenarios may impact a business strategy (Brigham &Houston 2012). Risk management protects the company’s employees and financial costs as the impact of hazards to populations and physical assets is controlled and reduced (Frigo 2008). In many instances, the vulnerability of a company is evaluated through the assessment of the potential impacts of events that are considered hazardous.

Risk management is often conducted in organizations based on the reliable measurements and the objectives of the risk assessment, which paves way to a more precise and comprehensive understanding of the range of potential damages and losses that might arise from the occurrence of a hazard within a selected time horizon (Frigo 2008). Damage to property in organizations is minimized or compensations are done through insurance policies that are put in place by the organizations as a risk management strategy (Brigham & Houston 2012). Insurance policies calculate the expected annual loss and the probable maximum loss that is useful for risk financing purposes.

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Risk measurement in organizations involves the evaluation of costs and benefits of risk reduction measures. Qualitative approaches may be essential in the assessment of risks whose magnitude may be obtained to assess the vulnerability of the organizations (Rasmussen 1997). Risk management is important in the protection of companies’ physical assets and employees as risk assessment often focuses on the expected sequence of events that may ensue from a hazardous event in the organization.

Factors that are known to amplify risks such as critical infrastructures and major central services are insured through risk management (Frigo 2008). Measures to control the risk level in fields such as energy, fuel, and money supply are also put in place to minimize the intensity of the destructive impacts that may arise from hazardous events in an organization (Das &Teng 1998). Financial costs that arise from possible interdependencies and spillovers are also minimized by risk management in organizations.

While focusing on the financial costs and the protection of employees in the organization, risk management focuses on the expected duration of events and the possible stress that might result from the events (Rasmussen 1997). The impact of the risk is then managed by distributing the impacts of the population and economy to major segments such as the government, households, the corporate sector, and the financial sector (Liberman and Woodruff, 1993). The nature and scale of the various segments are weighed to facilitate the management of potential risks, which can be direct or indirect.

Risk management protects the employees from injuries while it also protects companies from direct impact to property such as damage to buildings and infrastructure. Potential risks could also have indirect impact on companies such as the effects arising from the reduction in stock (Rasmussen 1997). Risk management facilitates the measurement of physical and human impacts by quantifying the physical harm to populations and the damage to assets.

Determining the number of injuries and fatalities in the occurrence of a hazardous event is a measure that weighs on the economic and financial impacts of the risks to an organization, and estimates the future potential risks, taking into account the potential benefits that might arise from disasters (Hopkin 2010). Risk management, through the aspect of the insured loss, is a vital in the assessment of the extent to which financial losses might be mitigated; hence, lowering the vulnerability of a company to financial costs and damage to employees.

Risk management measures the direct impact of event hazards to organizations through the assessment of physical damage, economic, and financial losses incurred. Various precautionary measures can be taken into consideration to determine the level of damage or losses incurred as the intensity and duration of the hazardous event changes (Liberman and Woodruff, 1993). The information gathered when identifying the potential risks and when analyzing the risks is important in the estimation, with known probabilities of hazard events and the expected financial costs.

Risk management procedures ensure that companies experience minimum financial costs and an improved protection of employees through the use of data inventories that are used to assess the exposures and vulnerability of events and conferences that are planned by organizations (Liberman and Woodruff, 1993). The information that is included in the inventory includes data on the location of employees and the characteristics and vulnerability of properties and infrastructure (Stevenson, William &Hojati 2007). Companies use the data inventories to facilitate the layering of hazards and the exposed employees to achieve an integrated view within a specific geographical area.

Location based inventories are vital in risk management as they ensure the protection of employees and the financial costs that result from damaged infrastructure. Location based inventories focus on limiting the exposure of employees to risks and reducing the companies’ vulnerability to risks during the planning of events and conferences (Stevenson, William &Hojati 2007). The data from the organizations’ inventories could be used to reduce disasters and maximize the efforts to reduce vulnerability to risks.

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