Realities of Risk Management6215922
Via the use of risk management, managers hope to identify, analyze, control, avoid, reduce, or eliminate the dangers that can harm their company. There are many errors that are made in risk management and it is important for companies to be aware the them. One error is the use of poor governance. Getting effective governance leads to openness and commitment which enables 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, particularly throughout times of fast development and favorable markets. There should 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 quantity 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 dangers. When one manager sees another manager disregarding dangers, they may have the tendency to follow suit. In order to steer clear of this, everybody must be made aware of the company's financial situation.
Misunderstanding the "if you can't measure it, you cannot 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. Another faux pas managers make is accepting a lack of transparency in high-risk locations. Many managers make choices with a lack of information. It is essential for managers to see the whole picture before they make choices. Executive management should create risk awareness throughout each aspect of the business.
A huge oversight in some companies is when they do not integrate risk management with strategy setting and overall performance management. When forming a strategy, it is important to incorporate all the risks involved. If dangers are left out, managers will be left with unrealistic strategic objectives. Thus, top to a technique that can deteriorate the company's competitive position, cause issues in the changing business environment, and trigger the business to shed value.
Another 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 feasible and not following the fact. It is important to familiarize the board with the organizations risk profile.
There are many dangers involved when operating a business. Managers need to behave in a manner that will benefit their company and they need to understand the risks involved in the business and be in a position to method them in a realistic manner.
