Discuss the Risk Management process • Through internal processes • Through financial instruments • Through regulation

Risk Management is a systematic process of identifying, assessing, and controlling threats to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters.

1. Through Internal Processes:

   • Identification of Risks: The first step in the risk management process is to identify potential risks. These can be internal or external - operational or strategic.
   • Assessment of Risks: Once risks are identified, they are then evaluated for their potential severity of loss and for the probability of occurrence. These quantities can be either simple to measure, in the case of the value of a lost building, or impossible to know for sure in the case of the probability of an unlikely event occurring.
   • Mitigation of Risks: The next step is to create and implement risk mitigation strategies based on the best option for each type of risk. This could involve insurance, diversification, asset allocation, etc.
   • Review and Evaluation of the Plan: The risk management process also includes a strategy for continuous monitoring and review to assess if the measures are working or if they need to be updated.

2. Through Financial Instruments:

   • Hedging: This is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities.
   • Derivatives: Financial instruments like futures and options can be used to manage risk, or the risk associated with the downside of investment choices.
   • Insurance: This is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses.

3. Through Regulation:

   • Compliance: Organizations must comply with various laws and regulations, which are designed to manage certain types of risks.
   • Auditing: Regular audits can help identify and address risks before they become problematic.
   • Reporting: Regular reporting of risks to regulatory bodies can help manage risks and also ensure that the organization is in compliance with all necessary regulations.

In conclusion, risk management is a continuous, forward-looking process that is an important part of business and technical management processes. Risk management should address issues that could endanger achievement of critical objectives.