
What is Risk Management?
And how one can identify and resolve such risks or set appropriate measures to avoid them from the start.
By: Sameer Aziz
First of all, we should know what risk management is. Risk management identifies, assesses, and controls threats to an organization’s capital and earnings. These risks stem from a variety of sources, including financial uncertainties, legal liabilities, technology issues, and strategic management errors. In simple terms, it is to determine,
- What happened?
- How did it happen?
- Why did it happen?
A basic risk management framework is a must while setting up any business if one wants to avoid any problems in the future. At least five crucial components must be considered when creating a risk management framework. They include risk identification, risk measurement and assessment, risk mitigation, risk reporting and monitoring, and risk governance. Risk management is not just a theory it is a real issue, it starts at the top, and making these risks more complex is not a remedy but a solution.
Every business has its own set of tools and techniques in its risk management framework. But the whole procedure is almost the same everywhere. Firstly, risk register, the risk should be identified and registered. Then Root cause analysis is a systematic process used to identify the fundamental risks that are embedded in the project. The Risk Assessment Template for IT, offers a numbered listing of the risks, along with the control environment.
According to section 4 of the Partnership Act 1932, “Partnership is the relation between persons, who have agreed to share the profits of a business, carried on by all or any one of them, acting for all”. Now we know, what partnership and risk management are and what are tools and techniques used for risk management. So let us discuss some risks involved in the partnership and possible ways to resolve them.
As mentioned in the above section, partnership business can be carried on by all or any one of them. But if only one person is acting for all of them, then the chances of fraud, scam, misrepresentation, etc. are increased to a certain degree. But it all can be avoided by having meetings at certain intervals and discussing the progress and future course of action of the business. Generally, all partners of the business are liable for paying the debts equally, the liability even extends to their assets which are unrelated to the partnership or the joined business. But in reality, such liability is proportional to the capital invested by the member. For instance, if a person is a partner for 25% of a business, then he is only liable for 25% of the debt, anything above is not his concern. Another big risk in the partnership business is the difference between expertise and knowledge. Because there is a possibility that a veteran or experienced partner may have formed the partnership with the bad intention just to gain capital. So one should do his research not only on business but his partner to ensure his track record. Another main risk in partnership, which many do not even think through is a dispute over assets, in case of dissolution of partnership or death of any partner. Being optimistic as we are, we do not even consider this scenario. But it can simply be resolved by adding certain clauses to the document of the partnership. But if no such thing or clause was added then? The answer is very simple, in case of death, one of his heirs is appointed with the consent of other partners and if not then assets equivalent to the proportional capital provided by the deceased must be given to heirs. Similarly, if the partnership is dissolved, each partner will be entitled to get assets proportional to the capital invested and the same goes for debts.
All in all, risk management is the process of identifying, assessing, and controlling financial, legal, strategic, and security risks to an organization`s capital and earnings. Risk Management enables a project`s success. Employees can reduce the likelihood and severity of potential project risks by identifying them early. If something does go wrong, there will already be an action plan in place to handle it. This helps employees prepare for the unexpected.