Risk Assessment: A Comprehensive Guide to Managing Uncertainty

This assignment delves into the multifaceted world of risk assessment, exploring both proactive and reactive approaches to managing uncertainty. It examines the process of risk management, identifying key sources of risk within organizations, and highlighting the importance of distinguishing between general and operational risks. The assignment also delves into the concept of risk registers, their content, and the significance of LTIFR as a measure of risk. Furthermore, it explores the relative significance of risks, utilizing the Risk Matrix to assess and compare different types of risks. The assignment concludes with a detailed analysis of a specific risk scenario, employing mechanism and outcome analysis diagrams to illustrate the complexities of risk management in practice.

Assignment 3
Risk Assessment

Contents
Introduction................................................................................................................................4
PART A......................................................................................................................................5
1..................................................................................................................................................5
a) What is the difference between proactive and reactive risk management?.......................5
b) Summarise in a logical manner (that is, the way in which the process would be carried
out) the process of risk management......................................................................................6
c) What are the main types of sources of risk in an organization?........................................7
e) Why is there a need to distinguish between general risks and operational risks?.............9
f) How do you know if the risk is under successful control?...............................................10
g) Explain the difference between a risk management system and a systemic approach to
risk management..................................................................................................................11
h) Summarise the necessary content of a risk management system.....................................11
2................................................................................................................................................12
Exercise 2 Explain why LTIFR is not a useful measure of that aspect of risk that is
associated with high Consequence values............................................................................12
Exercise 3 Can you explain why any competent management team would prefer to operate
with lower loss and risk costs and with higher risk control costs?......................................13
Exercise 4 Consider an organization with which you are familiar and identify and define
the constituents of TCOR.....................................................................................................14
Part B Relative significance of Risks.......................................................................................15
1. Choose a type of Risk that is of interest to yourself. Ensure first that you understand what
is meant by the phrase “Type of Risk”.....................................................................................15
a) Define it carefully, ensuring you have a proper understanding of the way Risk is
defined..................................................................................................................................15
b) What parameters could be used to describe this Risk in a manner that enabled it to be
compared in significance with other Risks of a different nature? Identify them and briefly
explain your choice..............................................................................................................16

c) What parameters could be used to allow this particular Risk to be compared with other
Risks of the same type? Identify them and briefly explain your choice..............................17
2. Describe a specific situation in which the above type of Risk might exist and...................18
a) Make use of the Risk Matrix provided in Figure 1, to ‘assess” your chosen Risk in this
situation. Explain what you have done and why you did it.................................................18
b) Read the relevant notes, the paper by Pickering and Cowley and the provided papers by
Peace and by Viner et al to provide you with a basis (along with your personal experience
of using it) for writing a critical evaluation of the Risk Matrix idea - both the reality of
using the matrix and the very idea of the matrix as something that can be used for this
purpose.................................................................................................................................19
Part C Risk Analysis................................................................................................................21
i. Define the appropriate Event and draw, with a brief written explanation, a Mechanism
analysis logic diagram..........................................................................................................21
(Figure- Mechanism analysis logic diagram).......................................................................21
ii. Determine and explain your choice of the ‘questions’ which you would use to provide
structure to the Outcome process and draw an Outcome Analysis diagram for the case
based on those questions......................................................................................................22
Conclusion................................................................................................................................23
References................................................................................................................................24

Introduction
This assignment of risk assessment helps to understand the various factors related to the risk
management. Risk management simply means to evaluate the risk and identify the areas
where risk can be removed and how this risk can are eliminated from the business
organization. This assignment explains the various elements of the risk management and
those elements are proactive and reactive risk management, the process of risk management
and understanding regarding the types and source of the risk management. This assignment
also provides the information regarding the relative significance of the risks which influence
the business environment.

PART A
1
a) What is the difference between proactive and reactive risk management?
Proactive risk management helps to avoid the existing and the emerging risk which may
influence the business environment (Creel, 2018). Proactive risk management helps to
understand the various risks which may occur in the business environment. A proactive
approach is one which provides the different source which helps to identify the various
consequences threats which happening of the event.
Reactive risk management is that management which occurs after happening of the event.
Reactive risk management can also be understood the ability of the management to respond
quickly to different events occurs in the organization.
Proactive is the method which does risk management whereas reactive method is not risk
management approach.

b) Summarise in a logical manner (that is, the way in which the process would be
carried out) the process of risk management.
Risk management is the process of identifying and evaluating the risk which may occur in the
business environment. Here are some steps involved in the risk management process –
1. Identify and describe risks – this step helps to identify the different risk which may occur
in the business organization. In this risk management officer analysis both the forward and
backward for the development of the project and describe them easily. For minimizing the
risk it is good to believe on their intuitions (Creel, 2018). When different risk is identified
then here a risk register is maintained and formal risk analysis is done to understand them
easily.
2. Understand the significance of the risks- after analyzing the various risks it is the time
for doing comparative scales for making different judgments like quantified risk estimation
and quantified risk analysis.
3. Recognise existing risk controls- In this step of the risk management, a comprehensive
statement is prepared for the organizational and process-oriented control over the
organization.
4. Evaluate risk control improvement possibilities – risk evaluation is the major part of the
risk management (Sjöberg, 2017). In risk evaluation, various decisions are made regarding
the requirement of the changes. All these decisions are based on the degree of risk and cost of
risk control changes.

c) What are the main types of sources of risk in an organization?
When a business organization starts then there are different risk happens in the business
(Hopkinson, 2017). The different main types of sources of risk in an organization are -
Energy- this is related to the physical damage. Energy is a very important part of the
organization. As this show the once able to do work with proper efficiency.
Functional failures- it means to understand the different purpose which increases the risk of
loss. This defines the inability of an asset which is not fulfilling the standards of the assets.
Liabilities – Liabilities are the legal prospect which increases the risk of loss.

d) What is a risk register and what information does it contain?
A risk register is a management tool which is used for the risk management. This tool is used
for fulfilling the regulatory compliance for identifying the risk and different information
related to that risk. As risk register is the register which is maintained all the details of the
risk occur in the business (Sjöberg, 2017). The different business organization has different
kinds of risk which all details are required to describe in the risk register. The content of risk
register is totally depending on the officers understanding regarding the risk. The various
points need to be maintained in risk register are -
 The number of people.
 An asset to the organization.
 Supplier risk.
 The process followed by the organization.
 Customers and union issues.
 Natural problems and
 Legislations changes related to the industry.

e) Why is there a need to distinguish between general risks and operational risks?
Operational risk is those risk which is associated with the operational working of the business
organization whereas the general risk is those risk which occurs from all other factors expect
the operational risk. Operational risks are related to the large intensities, different inventories
and many other major damages occur due to the operational work of the organization (Peace,
2017). The different industry has a different operational risk like – roof collapse, running
aground and coal system fire etc. are the operational risk of the different business industry.
General risks are related to the general rules related to the business organization and the
government legislation and the legal requirement of the different business organizations.

f) How do you know if the risk is under successful control?
For identify that risk is under the successful control these needs are required to be identified –
1. Statement of the factors which is made by the management regarding the different risks
(Cordery, 2017).
2. Feedback from the management that what we are achieving.
3. Factors that influence the system which helps in controlling the risk.

g) Explain the difference between a risk management system and a systemic approach
to risk management.
Risk management system is a system which used in the operations of the organization. Risk
management system helps in directing and managing the different risk may occur in the
business environment.
Systematic risk control includes different plans and these plans are quality assurance,
training, licensing and registration of operational (Gradwell, 2017). Systematic risk can also
be known as market risk.
h) Summarise the necessary content of a risk management system.
The content of risk management system can be understood by the risk management process.
Risk management process is started by identifying the risk, evaluate the different risk (Kraus,
2018). After identifying the risk estimation is done for its significance and decisions are made
regarding the different changes if required.

2.
Exercise 2 Explain why LTIFR is not a useful measure of that aspect of risk that is
associated with high Consequence values.
LTIFR refers to lost time injuries occurring in a workplace per million hours of working. For
example, an LTI of 5 means that 5 times lost time injury has taken place in million working
hours of the organization. LTIFR is calculated by multiplying LTI by 1000000 and dividing it
by the number of hours worked in an organization.
By definition an injury to be classified as LTIFR, it should cause an injury which keeps
employee away from work for more than 24 hours. Generally, the shift where the injury took
place is not counted in this.
The risk that is associated with high consequence values may cause injury which is likely to
be fatal or may keep away employees away from work for more than a day, a week or a
month also (Modarres, 2016). The fatalness of injury is not counted in LTIFR. For LTIFR, an
injury which keeps employees away for 1 day, 1 week, 1 month or are even fatal are same.
So from LTIFR, we cannot trace the seriousness of the injury or the damage it has done to the
organization. Neither we can compare the two organization of different LTIFR and comment
on their safety policy. LTIFR is useful just to measure the number of times injuries happened
in an organization, but as we cannot draw inferences on the seriousness of injuries caused in
the organization through this rate, it is not a useful measure of risk that is associated with
high consequences values.

Exercise 3 Can you explain why any competent management team would prefer to
operate with lower loss and risk costs and with higher risk control costs?
The concept to operate with lower loss and risk costs and with higher risk control costs is
concerned with the concept of TCOR. TCOR is the sum of cost an organization bears as an
investment to control risk and to compensate for the losses occurring through risk affected
events.
Any competent management team would prefer to operate with higher risk control costs
because these costs are definite and measurable, whereas the costs associated with loss and
risk costs are indefinite (Aven, 2015). If a company is concerned with TCOR, it should rather
invest in controlling the risk factors because loss costs can be rise to very high levels in some
cases.
The concept of investing in higher risk control is apter in organizations which work with
large machinery and in fatal conditions as in those conditions losses can be fatal. Also,
organizations which work with high man hours should definitely invest in higher risk control.
Competent management team always think of maintaining TCOR. Higher risk control costs
also reflect their concern for manpower and employees which is a sign of good management.

Exercise 4 Consider an organization with which you are familiar and identify and
define the constituents of TCOR.
Organisations I am familiar with is Australian Express and
Components of TCOR are as follows –
1. Insurance Premiums – This includes the amount organization spends on insurance
coverage and brokers commission.
2. Retained Losses – The retained losses are the out of pockets expenses a company
spends for losses occurred in events. For example, loss happened to clients and
customers due to employee’s mistake come under this category.
3. The cost to engage firms for help with risks and insurance issues. -This includes
money spent on professional organizations to handle insurances and other external
factors, this also includes hiring attorneys to handle complains and indemnification
requests. This is part of external risk control costs (Ayyub, 2014).
4. Costs to protect employees/customers from injury- These are costs needed to protect
employees from injuries. Examples are Safety equipment, mats, warning signs and
training. These are an integral part of TCOR.
5. Productivity loss – These are losses in production due to the injury of employees.
Employees on rest due to injuries will be at rest and it will affect overall production of
the company.

Part B - the Relative significance of Risks
1. Choose a type of Risk that is of interest to yourself. Ensure first that you understand
what is meant by the phrase “Type of Risk”.
a) Define it carefully, ensuring you have a proper understanding of the way Risk is
defined.
In general terms risks can be defined as the situation that involves the exposure to the danger
(Aven, 2015). It leads to the harm or loss to the individual. The risk is the possibility of
losing and acquisition the value that can be in terms of health, social status that can be
increased or misplaced at the time of action and inaction.

b) What parameters could be used to describe this Risk in a manner that enabled it to
be compared in significance with other Risks of a different nature? Identify them and
briefly explain your choice.
There are different parameters that are taken at the time of risks that helps to evaluate,
categorize and prioritize the risks. It can be the risk likelihood that defines the probability of
the occurrence of the risk. The other parameters are Risk consequence that denotes the
severity and impact of the risk occurrence. It also includes the thresholds that help to trigger
the activities of management

c) What parameters could be used to allow this particular Risk to be compared with
other Risks of the same type? Identify them and briefly explain your choice.
There are different parameters that allow vindicating the risks as compared to the other risks.
It includes the high-impact, low-probability risks that help the individual (Aven, 2015). It
also consists the risk buffering as in this case they can observe the risks effects without
endangering the projects. By avoiding the risk they can eradicate the problem. In this, they
can avoid the class of risk by changing the limits of the project.

2. Describe a specific situation in which the above type of Risk might exist
and
a) Make use of the Risk Matrix provided in Figure 1, to ‘assess” your chosen Risk in
this situation. Explain what you have done and why you did it.
Risk matrix can be used during the risk assessment that defines the level of risk by
recognizing the likelihood and probability against the consequence of severity. This model
can be used to identify the assessment of risk and hazards. If any risks occurred then they can
re-assess risk to demonstrate the effectiveness of a control. This model constructs to know the
difference between the consequence and effectiveness and that can be recognized as the
matter of risk (Ayyub, 2014). Figure 1 provides the two-dimensional matrix and they are the
effective, simple approaches to the management of risk. They recognized the likelihood
factors that can be analyzed on the different basis that it is risk can be certain, possible, high,
rare according to that basis the risk can be managed.

b) Read the relevant notes, the paper by Pickering and Cowley and the provided papers
by Peace and by Viner et al to provide you with a basis (along with your personal
experience of using it) for writing a critical evaluation of the Risk Matrix idea - both the
reality of using the matrix and the very idea of the matrix as something that can be used
for this purpose.
The risk matrix is the tool which is useful for identifying and doing risk management and also
provides the plan to the people who require displaying the relationship with the consequences
and the elements of the risk (Kraus, 2018). The risk matrix is used to demonstrate the level of
risk which links with the risk and the various rank risks and to demonstrate the control of the
risk. Basically, risk matrix is used to define the risk level associated with the pre-defined set
of risk. Pickering and Cowley give an example of risk matrix which is related to the two-
dimensional matrices (Peace, 2017). This matrix is commonly used by every business
organization. This is the simple and effective approach for risk management.
(Figure - Risk Assessment matrix)
(Source – Cole, 2015)
The above table shows that risk matrix is basically used in different industries and those
industries are medicine, construction, aerospace and major facilities of railways, agriculture,
and mining. The above table is related to the likelihood and consequences related to that
risk.in the risk, matrix risk is divided into different degrees that are high, moderate and low.
Matrix design is very simple as cells represent the possibilities and column represents the risk
categories (Gradwell, 2017). According to the author risk matrix is useful in every business
organization but sometimes due to poor specification related to the risk matrix, it creates
confusion regarding the different rows and columns.

The case study given by the Viner helps to understand the different prospect of the mining
industry. Mining is the area basically known for the different organic gases. In the mining,
industry risk is very high and then there is no immediate method will be used which provide
released from the drill.
When this matrix is used in the organization then it proves as the asset for the business
organization (Cordery, 2017). The risk matrix is the tool which is used when the risk
assessment is conduct in the business organization. Risk simply means the loss of the
property or anything else which is important for the business organization. While using the
risk matrix it is very easy to analyses the risk which may happen in the business organization
or may affect the operations of the business organization.

Part C Risk Analysis
i. Define the appropriate Event and draw, with a brief written explanation, a
Mechanism analysis logic diagram.
Risk analyses are simply the evaluations of the various risk of the business concern. In the
given case risk is related to the life of the pilot (Aven, 2015). The event in the case study
shows that how safety is important for the pilot and also for other passengers of the airplane.
Aircraft is the industry which relies on the different factors that are landing gear, take off and
land. These different factors help the operations of the airplane.
Here is a mechanism analysis logic diagram which explains the different factors which affect
the business profit. A mechanism analysis of the airplane defines the different demand and
supply of the customer requirement. This logic diagram helps to understand the factors and
those factors are better services, good working conditions and the different relationship with
its clients. Mechanism analysis is very important for the every business organization.
(Figure- Mechanism analysis logic diagram)
(Source – By Author, 2018)

ii. Determine and explain your choice of the ‘questions’ which you would use to provide
structure to the Outcome process and draw an Outcome Analysis diagram for the case
based on those questions.
After analysis, the different risk factor organization need to find the various outcomes which
may occur due to those risks. Outcome simply means what happens after occurring of an
event. The outcome can be both positive and negative outcome. According to the case study
in that case if proper safety did not consider at the time of preparing the aircraft then
mishappening definitely occurs on that plane.
(Figure- Outcome analysis logic diagram)
(Source – By Author, 2018)
The above diagram shows the outcome analysis logic diagram which is related to the risk,
events and the different consequences related to that risk. As per the case study aircraft take
off risk analysis is the very complex mechanism and outcome of that risk mat also complex.
The outcome analysis logic diagram explains the physically possible risk and its reflection
and the respond to each event (Ayyub, 2014). So for the business organization outcome
analysis is very important for the business organization. This helps to risk management
officers to identify that what possible outcome may arise due to a specific risk.

Conclusion
The above assignment helps to understand the concept of risk assessment. In this assignment,
different risk parameters are analyzed to evaluate the risk in the business organization. This
assignment also helps to understand the different risk nature which is helpful in removing the
risk from the business organization. This assignment also provides the risk matrix which
shows the different parameters of the organization related to the risk associated with the
business concern. In this assignment, a case study is also given which helps to analyze the
different event of the business organization which affects the air force industry. At the end of
this assignment, one can easily understand that how risk management is necessary for the
business unit.

References
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