MANAGEMENT

Risk Management

Risk Management

Relationship between Risk and Performance

A business has to take risk at every aspect and when an organization fails, it is the sign that it was not able to manage the risk appropriately. Performance variance is a risk concept which is used in economics, finance and the strategic management of a business. It refers that the unpredictable which might happened could me more or less than expected (Miller, 1992). Owing to this fact, it is important that managers must be taught regarding the risk management in order to enhance performance of organization and make the risk management even more applied in whole organization, initiating from executive and managers to the staff. Significant amount of research shows that the high growth and high investment opportunities for firms also have high level of risk (Saleem, n.d. pp. 258-267).

The most potential harm a risk can impose is the loss of capital or finance. Diversified shareholders do not consider the excessive managerial risk taking much problematic because organization's failure may not impact the portfolio of investors in any significant way. The traditional finance approach for defining the positive link between risk and return is that the investors are given a risk premium for accommodating high degree risks (Saleem, n.d. pp. 258-267). The performance measurement tool can be enhanced by including aims for risk management and by capturing metrics which are performance based.

A single risk management system along with business excellence function in a firm which is able to incorporate performance and risk must create a sustainable and strong success and growth model for an organization. The only critical aspect is to design a right approach which not only identifies the risk but also its impacts on performance of employees and organization.

Risk Management Tools

The basic premise of the existence of every business is to increase shareholder value. Every entity face risk and it is a challenge for management to determine how much risk it can take because it also has to increase shareholder value. Risks not only present threats but they may also bring opportunities depending upon the potential to enhance or erode the value (Tseng, 2007, pp. 47-53). In order to manage the seen and unforeseen risks, organizations implement risk management tools.

Enterprise risk management is a tool which enables management of an organization to address the indecision, opportunities and risks associated with the system. It enhances the capacity to build value among diverse shareholders and in the market. It takes a wide perspective on recognizing the risk which effect an organization and lead it to the failure in meeting its objectives and strategies. There has been an increase in using enterprise risk management tool to enable organizations to deal with the potential impacts of risks in products, services, processes and stakeholders (Lam, 2003, pp. 48-56). ERM tool helps an organization to use its capital efficiently.

The ERM may be integrated into a viable strategy under the conditions of the transmission efficiency of the control system, such as part ...