In the recent past, researchers have made an effort in a bid to identify the consequences of decision making and implementation. Individuals and organizations make decisions every day, and some of the decisions made are implemented. Implementation of the decisions may lead to a positive or negative outcome. Everyone, therefore, needs to assess and understand the impact of each decision since each decision bears with it an element of risk and returns. Both the risk and returns have a possibility of occurrence. Therefore risk is the possibility of an unwanted result occurring on an event. According to Crane, Gantz, Isaacs, Jose, and Sharp (2013), a risk is defined as the possibility of occurrence of loss or unfavorable outcome of an event. An event, therefore, has the potential of experiencing favorable and adverse outcome. Due to the possibility of having a favorable or unfavorable result, it is evident that risk is uncertain. It is hard to compute the actual chance of occurrence of risk because it has many factors of which could be beyond what can be controlled.
It is therefore essential to assess the decisions, weigh the impact and take precautionary measures which will help cushion the organization in case the threat occurs. Accessing choices will help reduce the damage and not stop the organization or individual with resuming with business as usual. According to WHO (2009), risk assessment is done in five stages. These stages include identification of risk, measurement of risk, evaluation of capacity to handle risk, assess exposure to risk and development of risk management goals. To illustrate how it is applied in an organization, we look at HSBC Bank Plc which has been considered one of the largest banks with worldwide coverage. Identification of risks is a process which helps in classification and description of the various risks that are likely to occur and in HSBC bank. Identification of risk could include looking at the multiple operations and checking for gaps in the finance, marketing, human resources or information technology where risk might occur.
Measurement of risk involves computation of the likelihood of the risk occurring to be able to set up a backup plan or a control measure to aid in minimizing of losses. Assessment of capacity to handle risk is a crucial step in the banking sector as it establishes if the bank is ready and willing to handles the risk in case it occurs and still maintain the business running smoothly. Assessment of capacity goes a long way in ensuring that the organization is prepared and has a backup plan. Assessment of ability to handle risk is a critical risk management tool as it plays a significant role in making sure that the bank has set up adequate structures which can cushion it in case of occurrence of the risk. It helps ensure the organization’s operations and existence are not affected in case of a threat. The last step is assessing exposure to risk which allows the organization evaluate its processes to see if there are any gaps which need to be considered to reduce the occurrence and impact of the threat to the bank. Once these steps have been undertaken, the bank should evaluate if the assessment had an effect in reducing chances of occurrence and in reducing losses in case the unfavorable event occurs.
Risk assessment is an essential procedure that the bank should regularly undertake to evaluate its performance, to keep it relevant and to minimize losses. Conducting an evaluation will also help the bank be able to identify gaps in the operations which could be improved on to increase returns. Some of the potential risks in HSBC bank include financial risk, legal risk, human resources or human capital risk and operational risk. Finance risks is a risk which affects the financial status of the bank. Financial risk is characterized by cash flow problems, loan default challenges, reduction in capital and lack of ability to meet liabilities as and when they fall due. Finance risk might lead to a closure of the bank as the operations will be put on a standstill. Legal risk is a type of risk which arises due to complications and challenges with the ability to stick to commitments made. In this case, the bank is not able to seal a deal due to contractual shortcomings. It is characterized by lack of compliance with contracts, failure to comply with laws and regulations and illegal operations. Human resources risk arises due to inability to maintain the personnel working at the business. Human resource risk will lead to lack of competent staff who can perform optimally. It is characterized by poor relations and lack of handover or succession plans. Operational risk is a risk which occurs due to poor processes. The poor methods lead to lack of good quality and quantities which is terrible for business. It is important to assess risks and find solutions to minimize gaps and most of all minimize losses you can read about this methods in the risks essay.