Risk Management Techniques

14.
Risk Management
What is Risk Management?
• If we think of the business world as a racecourse then the
risks are the potholes which every business on the course must
avoid if they want to win the race.
• Risk management is the process of identifying all the potholes,

assessing their depth to understand how damaging they can
be, and then preparing a strategy to avoid damages.
• A small pothole may simply require the business to slow down

while a major pothole will require the business to avoid it
completely.
• Risk management is an important business practice that helps
businesses identify, evaluate, track, and improve the risk
easing out process in the business environment.
• Businesses want to ensure stability as they grow. Managing the

risks that are affecting the business is a critical part of this
stability.
• Not knowing about the risks that can affect the business can
result in losses for the organization – loss of market share,
financial losses, safety risk can result in an accident, and so on.
• A business that can predict a risk will always be at an advantage
that can predict a financial risk will limit its investments and
focus on strengthening its finances.
• A business that can assess the impact of a safety risk can

devise a safe way to work which can be a major competitive
advantage.
Key Components
1. Risk Identification: Recognizing potential threats and

opportunities.
2. Risk Assessment: Analyzing the likelihood and potential

impact of identified risks.
3. Risk Prioritization: Determining the order in which risks

should be addressed based on their severity.
4. Risk Treatment: Developing strategies to mitigate, transfer,

accept, or avoid risks.
5. Risk Monitoring and Review: Continuously evaluating the

effectiveness of risk management efforts.
Why is Risk Management Important?
1. Protects assets: Reduces the likelihood of financial loss.
2. Enhances decision-making: Provides valuable insights for

strategic planning.
3. Improves reputation: Demonstrates a proactive approach to

managing challenges.
4. Ensures business continuity: Helps maintain operations

during crises.
Types of risks / Sources of Risk:
1. Financial: Economic fluctuations, market volatility.
2. Project failures - at any phase in design, development,
production, or sustainment life-cycles,
3. Legal liabilities,
4. Credit risk,
5. Accidents,
6. Natural causes and Disasters
7. Attack from an adversary.
8. Operational: Errors, fraud, system failures, supply chain
disruptions, etc.
9. Strategic: Changes in market conditions, technological
advancements, regulatory changes, etc.
10. Reputational: Negative publicity, brand damage, legal issues,
etc.
11. Compliance: Non-adherence to laws, regulations, or industry
standards
Five Steps of the Risk Management
Process
The Five Essential Steps of A Risk Management Process
1. Identify the Risk
2. Analyze the Risk
3. Evaluate or Rank the Risk
4. Treat the Risk
5. Monitor and Review the Risk

Process
Step 1: Identify the Risk
• The initial step in the risk management process is to identify the

risks that the business is exposed to in its operating
environment.
There are many different types of risks:

• Legal risks
• Environmental risks
• Market risks
• Regulatory risks etc.
Process
Step 2: Analyze the Risk
• Once a risk has been identified it needs to be analyzed - the

scope of the risk must be determined.
• It is also important to understand the link between the risk

and different factors within the organization.
• To determine the seriousness of the risk it is necessary to see

how many business functions the risk affects.
• There are risks that can bring the whole business to a standstill
if actualized, while there are risks that will only be minor
inconveniences in the analysis.
Process
Step 3: Evaluate the Risk or Risk Assessment
• Risks need to be ranked and prioritized. Most risk management

solutions have different categories of risks, depending on the
severity of the risk.
• A risk that may cause some inconvenience is rated low. The

business may be vulnerable to several low-level risks, but it may
not require upper management intervention.
• Others can result in catastrophic loss are rated the high. The
highest-rated risks is enough to require immediate intervention.
There are two types of risk assessments:

Qualitative Risk Assessment and Quantitative Risk Assessment.
Process
Qualitative Risk Assessment
• Risk assessments are inherently qualitative – most risks are not
quantifiable. For instance, the risk of climate change. There
needs to be a way to perform qualitative risk assessments while
still ensuring objectivity and standardization in the
assessments.
Quantitative Risk Assessment

• Finance related risks are best assessed through quantitative risk
assessments – common in the financial sector because the
sector primarily deals in numbers.
• Quantitative risk assessments are easier to automate than

qualitative risk assessments and are generally considered
more objective.
Process
Step 4: Treat the Risk
• Every risk needs to be eliminated or contained as much as

possible – by experts of the field to which the risk belongs.
• Contacting every stakeholder and then setting up meetings so

everyone can talk and discuss the issues.
Process
Step 5: Monitor and Review the Risk
• Not all risks can be eliminated – some risks are always

present.
• Market risks and environmental risks are just two examples

of risks that always need to be monitored.
• Monitoring through diligent employees to make sure that they

keep a close watch on all risk factors. Under a digital
environment, the risk management system monitors the entire
risk framework of the organization. If any factor or risk changes,
it is immediately visible to everyone.
Benefits of Risk Management
1. Improved Decision Making: Informed choices based on a
thorough understanding of potential risks.
2. Enhanced Reputation: Demonstrates a commitment to

responsible practices and risk mitigation.
3. Increased Efficiency: Streamlined operations and reduced

disruptions due to well-managed risks.
4. Financial Stability: Protection against financial losses and

improved profitability.
5. Regulatory Compliance: Adherence to industry standards and

legal requirements.

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14.

• Risk management is the process of identifying all the potholes,

• A small pothole may simply require the business to slow down

• Businesses want to ensure stability as they grow. Managing the

• A business that can assess the impact of a safety risk can

1. Risk Identification: Recognizing potential threats and

2. Risk Assessment: Analyzing the likelihood and potential

3. Risk Prioritization: Determining the order in which risks

4. Risk Treatment: Developing strategies to mitigate, transfer,

5. Risk Monitoring and Review: Continuously evaluating the

2. Enhances decision-making: Provides valuable insights for

3. Improves reputation: Demonstrates a proactive approach to

4. Ensures business continuity: Helps maintain operations

1. Identify the Risk

2. Analyze the Risk

3. Evaluate or Rank the Risk

4. Treat the Risk

5. Monitor and Review the Risk

• The initial step in the risk management process is to identify the

There are many different types of risks:

• Once a risk has been identified it needs to be analyzed - the

• It is also important to understand the link between the risk

• To determine the seriousness of the risk it is necessary to see

• Risks need to be ranked and prioritized. Most risk management

• A risk that may cause some inconvenience is rated low. The

There are two types of risk assessments:

Quantitative Risk Assessment

• Quantitative risk assessments are easier to automate than

• Every risk needs to be eliminated or contained as much as

• Contacting every stakeholder and then setting up meetings so

• Not all risks can be eliminated – some risks are always

• Market risks and environmental risks are just two examples

• Monitoring through diligent employees to make sure that they

2. Enhanced Reputation: Demonstrates a commitment to

3. Increased Efficiency: Streamlined operations and reduced

4. Financial Stability: Protection against financial losses and

5. Regulatory Compliance: Adherence to industry standards and

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