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How to build a risk management plan to save you from excessive risks

A basic risk management plan and strategy can help a lot of people like you to be prepared for the unexpected and expected events in life.

To build this plan you can use a tool named risk matrix. This tool gives a clear understanding of situations, the problems that could arise and the solutions in those circumstances and presents it in a simple manner.

You can refer to the risk matrix easily by choosing the risk category and it immediately gives you a clear picture of the probability of such a thing to happen, the consequences in case such an event had to occur, how to reduce it, or avoid it, and transfer it or just retain it. Sometimes risks can be cheaper if retained.

Risk Matrix

Your risk management plan is therefore detailed in this tool. Your solution should be well aligned with the risk so that any such event should take place your plan will work.  The risk matrix is a simple tool yet functions efficiently.

This is the tool that aligns your objectives with your response or action plan and an example of its use:

Objective
Related area
Risk
Do you have some control? Which?
Probability of ocurrence
Actions to mitigate the risk
Reduce my debts to $ 1,000 until end of year Debt management That my expenses  increase and I cannot pay my debts  Currently I have no control Moderate Make a budget and compare it with my monthly income and expenses statement

What could you do with your risks?:

In general, you have four options to consider in your risk plan:

  • Avoid risk: Many risks can be actually avoided by planning properly. By taking a risk assessment before you invest your money you can actually know if the whole thing is going be too risky, moderately risky or less risk in the beginning itself.
  • Reduce risk: The probability of a certain event can be reduced like for example increasing the security measures for your home or increasing the fire safety measures will reduce the possible threats that you or your house can face.
  • Retain Risk: There are many risks that are too small to fall under the risk management plan or would need an insurance plan for example. There are many risks for which the chances of happening are very low or nil and some risk even if they occur can be rectified easily.
  • Transfer risk: There are some risks which can cost you dearly like for example if someone gets injured in your home it can cost you dearly in terms of hospital expenses. In such cases transferring these risks to an insurance company is the best possible option to consider in your risk management plan.

When you are faced with financial crisis, it immediately causes you to get stressed out and you cannot think clearly when you are stressed out. In such case a risk management plan is a much better help and gives you the peace of mind when you are going through financial crisis. The risk management process helps you create a reserve and cushion that you can fall back upon in times of need.

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