Understanding Risk Management

Risk management involves identifying, assessing, and prioritizing risks followed by resource application to minimize, control, and monitor the probability of unfortunate events.

A foundational step in risk management where potential threats are detected. Techniques include brainstorming, Delphi method, interviewing, root cause analysis, and SWOT analysis.

This technique quantifies risks and predicts their impact, using tools such as Monte Carlo simulations, decision tree analysis, and sensitivity analysis.

Diversification spreads exposure across various sectors or investments, reducing the impact of a single adverse event. It's a core concept in portfolio management.

Risk transfer reallocates risks from one party to another. Insurance policies, hedging, and outsourcing are common examples where risk is shifted to willing parties.

The most straightforward technique is avoiding risk altogether. It may involve altering business plans or not engaging in risky activities, hence sacrificing potential gains.

Constantly reviewing and monitoring risk factors allows for timely adjustments in strategy. It's an ongoing process that includes post-event analyses to improve future risk management.