Risk Management: Are You Prepared?

Uncertainty is something we as humans cannot question but prepare for. In recent times, a lot has happened nationwide, lives and properties have lost via Natural disaster (flood, Sand storm etc) or manmade mishap, writing a list here will just put me on the stop for ever. As humans, we are vulnerable to risk of any form at any given time, but a simple question is how prepared are we as humans towards our environment of uncertainties? The question lingers. This brings me to the focus of this piece, how much do we know about risk management as a Government, a Society, a community, groups of companies and as individuals? Nobody is born to fall or nobody plans to fail, but as long as we cannot control time and the mysteries it unfolds, preparedness will be key to check mate such ill occurrences.   Risk management Risk management is the identification, assessment, and prioritization of risks (defined as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities (Wikipedia). It is also the analysis of possible loss: the profession or technique of determining, minimizing, and preventing accidental loss in a business, e.g. by taking safety measures and buying insurance (Microsoft Encarta®). Risks can come from uncertainty in financial markets, project failures (at any phase in design, development, production, or sustainment life-cycles), legal liabilities, credit risk, accidents, natural causes and disasters or events of uncertain or unpredictable root-cause. The process of risk management is designed to reduce or eliminate the risk of certain kinds of events happening. Risk management minimizes spending (or manpower or other resources) and also minimizes the negative effects of risks   Types of Risk There are many different types of risks that risk management plans can mitigate. Common risks include things like accidents in the workplace or fire, sand storm, flood other natural disasters. It can also include legal risks like fraud, theft etc. Risks can also relate to business practices, uncertainty in financial markets, failures in projects, credit risks, or the security and storage of data and records The International Organization for Standardization (ISO) identifies the following principles of risk management Risk management should: -Create value – resources expended to mitigate risk should be less than the consequence of inaction -Be an integral part of organizational processes -Be part of decision making -Explicitly address uncertainty and assumptions -Be systematic and structured -Be based on the best available information -Take human factors into account -Be dynamic, iterative and responsive to change -Be capable of continual improvement and enhancement -Be continually or periodically re-assess Five steps to risk assessment There are different strategies used to mitigate or eliminate risk, the process for identifying and managing the risk is quite standard and consists of five (5) basic steps. First, threats or risks are identified. Second, the vulnerability of key assets like information to the identified threats is assessed. Third, the risk manager must determine the expected consequences of specific threats to assets. Fourth, figure out ways to reduce risks. Fifth prioritize the risk management procedures based on their importance.   Objectives of Risk Management The idea behind using risk management practices is to protect businesses, properties, assets, lives and the environment at large from being vulnerable. Risk management in the case of companies is designed to protect the employees, customers, and general public from negative events. Risk management practices are also about preserving the physical facilities, data, records, and physical assets a company owns or uses. There are different strategies for managing risk as there are types of risks. Risk can be managed by accepting the consequences of a risk and budgeting for it. Another strategy is to transfer the risk to another party by insuring against a particular incident, like fire etc. Risk management varies depending on the sector of the economy, for example, the offshore oil and gas industry, operational risk management is regulated by the safety case regime; risk management for information technology, ISACA’s Risk IT framework ties IT risk to Enterprise risk management. Risk management is particularly pertinent for mega-projects; special methods and special education have been developed for such risk management such bridges, tunnels, highways, railways, airports, seaports, power plants, dams, coastal flood protection schemes, oil and natural gas extraction projects, public buildings, information technology systems and defense systems.

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This article was first published on 19th July 2012

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