RISK MANAGEMENT

In life, we encounter all sorts of risks. It is ubiquitous; one can't get away from it. There are mishaps people
encounter, some are dramatic - those are the highlighted incidents or the ones that stick in our mind, some are
mundane - those are the minor incidents that we tend to forget easily.
Risk Management - is the process of identifying, evaluating, and prioritizing risks followed by integrated and
economical application of resources to reduce, observe, and control the probability or impact of unfortunate events
or to maximize the realization of opportunities.
- Or it is the process of measuring, or assessing risk and then developing strategies to manage the risks.
- is defined as the systematic process of identifying, assessing, and controlling potential risks or
uncertainties that could negatively impact an organization's objectives. It serves as a means to
anticipate potential obstacles and reduce their impact, thereby facilitating smoother operations and
strategic decision-making.
Risk - is an uncertain events or condition that might affect your project if it occurs

- Can be defined as the chance of loss or an unfavorable outcome associated with an action.
- An uncertainty that could have an adverse effect leading to loss, harm or damage.

Opportunity – an uncertainty that could have a positive effect leading to benefits or rewards.

Positive Negative
1. An opportunity to improve your project 1.A threat to your project success
2.Results in a negative outcome or even failure for
2. Often give improved results
your project.
3. Should be seized and built upon 3.Should be avoided, minimized, or eliminated
4. Managing positive risks can include exploiting, 4.managing negative risks can include avoiding,
sharing, and enhancing the risk transferring, or mitigating the risk.

The 7 Key Principles of Risk Management

Risk management is an indispensable process that helps organizations identify, assess, and mitigate risks. By
doing so, it plays a crucial role in achieving organizational goals, enhancing governance, and improving decision-
making. Here, we will outline the 7 key principles of risk management that provide the groundwork for this vital
function.

1. Proactive Approach
One of the founding principles of risk management is to be proactive rather than reactive. This involves identifying
potential risks well in advance and taking measures to prevent or mitigate them. A proactive approach allows
organizations to prepare for uncertainties and capitalize on opportunities.
- Is any self-initiated action that prepares to handle the future.

2. Systematic Process
Effective risk management requires a systematic approach to identifying, evaluating, and mitigating risks. This
should involve standardized procedures and tools to ensure that risk is assessed in a consistent manner across
the organization.

3. Informed Decisions
At the core of risk management lies the principle of making informed decisions. This requires the collection and
analysis of data and metrics to provide a factual basis for decision-making. Decisions should be aligned with the
organization’s strategic objectives and risk tolerance levels.

4. Integrated Framework
Risk management should be integrated into all aspects of the organization, from strategic planning to operational
processes. This integrated approach ensures that risk management is not a siloed function but a collaborative effort
that involves various departments and stakeholders.

5. Resource Allocation
Effective risk management requires the appropriate allocation of resources. Whether it’s manpower, technology, or
capital, resources should be directed toward the areas with the highest levels of risk exposure, ensuring the most
efficient use of organizational assets.
 6. Transparency and Communication
Open and transparent communication is crucial for successful risk management. All relevant stakeholders should
be informed about the organization’s risk profile and the measures in place to mitigate those risks. Transparent
communication builds trust and enhances the organization’s risk culture.

7. Continuous Monitoring and Review

Continuous monitoring and periodic review are vital to ensure that the risk management practices remain effective
over time. Risk profiles change, and the effectiveness of mitigation measures needs to be assessed regularly to
adapt to new circumstances.

Risk Management Process:

1. Establish the context – understand the environment in which the respective organization operates, that
means they thoroughly understand the external environment and the internal culture of the organization.
You cannot resolve a risk if you do not know what it is.
2. Identification – identify potential risks. Risks are about events that, when triggered will cause problems.
Hence, risk identification can start with the source of problems or with the problem itself.

Various methods of Risk Identification:

1. Brainstorming
2. Interview
3. Checklists
4. Direct observations
5. Survey
3. Assessment – once risk have been identified, they must be assessed as to their potential severity of loss
and to the probability of occurrence.
4. Potential Risk Treatment:
a. Risk Transfer – means that the expected party transfers whole or part of the losses consequential to
risk exposure to another party for a cost.
b. Risk Avoidance – avoid the risk or the circumstances which may lead to losses in another way, includes
not performing an activity that could carry risk.
- this is the most direct avenue for dealing with risk. It simply involves removing
any opportunity for the risk to cause a loss event.
c. Risk Retention – planned acceptance of losses by deductibles, deliberate non-insurance, and loss-
sensitive plans where some, but not all, risk is consciously retained rather than transferred.
d. Risk control – risk can be controlled whether by avoidance or by controlling losses.
Main Types of Control
 Preventive controls apply at the beginning of a risk’s life, at or near the root
cause(s). They primarily reduce the likelihood of the risk occurring.
 Detective controls usually apply somewhere in the middle of the risk’s life.
 Reactive controls (sometimes called responsive or corrective), apply towards the
end of a risk’s life when the impact is imminent being felt.