What does it mean to manage risk?

Managing risk involves thoroughly analyzing exposures to various risks and designing programs or strategies aimed at minimizing potential financial losses. It encompasses a proactive approach where risks are identified and assessed to understand their potential impact on an organization or individual. By understanding these risks, appropriate measures can be taken to mitigate them, which may include implementing controls, transferring risk through insurance, or preparing contingency plans. This process is essential for ensuring stability and sustainability in financial management, operational effectiveness, and overall strategic planning.

The focus is on minimizing loss rather than increasing risk or ignoring hazards, which are counterproductive to effective risk management. Instead of just creating opportunities for financial gain, which could lead to overlooking potential pitfalls, the primary aim is to balance risk and reward effectively ensuring that informed decisions are made that safeguard against significant negative impacts.