Risk management provides a framework for organizations to deal with and to react to uncertainty. It is the process of identifying, analyzing and responding to risk factors throughout the life of a project and in the best interests of its objectives. Proper risk management implies control of potential future events and is proactive rather than reactive.
Risk management refers to the procedure involved in assessing and effectively handling the quantity of risk identified within the company which can be backed by the tools of Six Sigma. These tools include a data driven approach in providing quality services which are without defect and near perfection.
The Basel and Solvency committees and rating agencies have acknowledged Six Sigma as a best practice framework in operational risk management.
The framework for managing risks within a business entity consists of several components. Managing of risks begins with the internal environment of the organization which includes the organizational values and culture. Values and culture will affect the perceptions of employees and leaders in determining the level of responsibility they will assume in addressing controls and risks.
Through the execution of specific tools, one may identify and eliminate the inadequacies or deficiencies which may lead to less than desirable effects in terms of products and services. Performance indicators can serve in determining where deficiencies lie. This will permit companies to draw on resources in order to improve operations and results.
Through the assessment of risks, the organization can identify the level of impact which a particular event may have on achieving objectives. Through a statistical analysis, one may distinguish the severity of the effect an event will bear on the Organization and then carry out strategies to prevent this from happening.