Realities of Risk Management1087827
Through the use of risk management, managers hope to identify, analyze, control, steer clear of, reduce, or eliminate the dangers that can harm their company. There are many errors that are made in risk management and it is essential for companies to be aware the them. One mistake 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 essential to have discipline when involved in risk taking, especially during times of rapid growth and favorable markets. There must be limits, checks and balances, and monitoring involved.
An additional miscalculation that managers have is following the "herd mentality". When a company has a large amount of activities, especially in the locations of mortgage brokers, lenders, mortgage insurers, investment bankers, and institutional investors, it is easier for a manager to ignore the risks. When one manager sees another manager disregarding risks, they may have the tendency to follow suit. In order to steer clear of this, everyone should be made conscious of the company's financial condition.
Misunderstanding the "if you can't measure it, you cannot manage 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 locations. Many managers make decisions with a lack of information. It is important for managers to see the whole picture before they make choices. Executive management must produce risk awareness throughout each aspect of the business.
A massive oversight in some companies is when they do not integrate risk management with strategy setting and performance management. When forming a technique, it is essential to incorporate all the risks involved. If dangers 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 cause the business to lose worth.
An additional oversight that can have a drastic impact on managing risks is not involving the board in a timely manner. If a issue arises, the board should be notified as soon as possible and not following the reality. It is essential to familiarize the board with the organizations risk profile.
There are many risks involved when running a business. Managers need to behave in a manner that will advantage their company and they need to understand the dangers involved in the business and be in a position to approach them in a realistic manner.
