Understanding Risk Management: Types, Strategies, and Objectives

This article discusses the different types of risks, such as opportunity-based, uncertainty-based, hazard-based, pure, speculative, fundamental, particular, and enterprise risks. It also covers the strategies of risk management, including risk avoidance, transfer, sharing, reduction, retention, and diversification. The objectives of risk management, such as pre-loss and post-loss objectives, are also explained. The article concludes with tips on managing project risks successfully.

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RISK MANAGEMENT
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Risk Management
Introduction
Risk is a chance or probability of a deviation from an anticipated outcome. For a risk to
be prevalent there must be a terminal objective. Risk leads to a loss and denotes a potential
negative impact to some characteristics of value that may arise from a future event. It is a good
idea to understand the different types of risks your business may face so that you can recognize
and plan ahead of them.
Risks can be categorized into a number of distinct categories as discussed hereafter.
Opportunity Based; This type of risk comes from taking one opportunity over others. By
deciding to commit your resources to one opportunity, your risk can be either missing a better
opportunity or getting unexpected results. Opportunity based risks of a business include moving
a business to a different location, buying a new property or selling a new product or service.
Uncertainty Based risks; This type of risk comes from uncertainty around unknown or
unexpected events. It’s hard to predict these events and the damage they can cause. Hazard
Based risk ;these types of risks come from dangerous situations in the work place .Some
common examples include: physical hazards cause by high noise levels ,extreme weather or
other environmental factors ,equipment related hazards caused by faulty equipment or poor
processes when using equipment such as machinery, chemical hazards caused by improper
storage or use of flammable ,poisonous , toxic or carcinogenic chemicals ,biological hazards
caused by viruses ,bacteria ,fungi or pests , ergonomic hazards caused by poor work place design
,layout or equipment use , psychological hazards caused by bullying and
harassment ,discrimination ,heavy work load or mismatch of employee skills with job duties.

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Pure Risk; it is a situation where there are only two possibilities; loss or no loss. The only
possible outcomes are adverse loss or neutral loss. They include: personal risk (directly
affecting an individual e.g. (premature death, insufficient income, poor health, risk of
unemployment), property risk, liability risk i.e. where one can be held personally liable if
they are involved in property damage or bodily damage to someone. Speculative Risk;
This is a situation in which there is either profit or loss e.g. investment in security;
Fundamental Risk; this is a risk that affects the entire economy or large number of people
or groups within the economy e.g. starvation, inflation, political instability, corruption,
war and terrorism. Particular Risk; Is risk that affects an individual and not an entire
community e.g. car theft, fire or accident. Enterprise Risk; it encompasses all major risks
that faces a business. They can be broadly categorized into: financial risk, operational
risk. (affects the day to day running of the business e.g. purchasing risk, fraud risk
(integrity risk). Strategic Risk; this is risk emanating from adverse decision making in an
organization e.g. reputation risk external business environment risk, regulatory and legal
compliance risk. Systemic Risk; is the possibility that an event at the company level
could trigger severe instability or collapse an entire industry or economy Example of
systemic risk the Lehman Brother’s company in USA which collapsed and created
problems throughout the financial system and the economy. Capital markets froze up
while businesses and consumers could not get loans or could only get loans if they were
extremely credit worthy, posing minimal risk to the lender.

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Risk Management
This is the process of coming up with control techniques that may be used to
either reduce the impact of the loss or reduce the chance of the loss happening. Risk
management strategies have two elements: reducing the impact of risk and reducing the
chance of the risk happening.
All risk management processes follow the same basic steps, although
sometimes different jargon is used to describe these steps. The steps are as follows:
Identify the Risk; Recognize and describe risks that might affect your project or its
outcomes. This involves analyzing all the potential losses. Assess the Risk; This involves
analyzing loss exposures by measuring the frequency of severity of loss i.e. the number
of times that the risk may occur in a given time and severity referring to the probable size
of loss that may occur. Evaluate the Risk; you evaluate or rank the risk by determining
the risk magnitude, which is the combination of likelihood and consequence. You make
decisions about whether the risk is acceptable or whether it is serious enough to warrant
treat. Treat the Risk; this is also referred to as risk response planning. During this step
you assess your highest ranked risks and set out a plan to treat or modify these risks to
achieve acceptable risk levels. You can create mitigation strategies, preventive plans and
contingency plans in this step. Monitor and review the Risk; this is the step where you
take your project risk register and use it to monitor, track and review risks

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There are various strategies of risk management which are as follows Risk Avoidance;
this is eliminating an activity or stopping a venture when the risk is ought to be greater and a
loss of greater consequences than the benefits accrued to the activity.
Risk Transfer; It involves waiver insurance policies or warranties. Risk transfer happens where
the activity is central led to the program and the risk is to greater for you to obtain. Risk Sharing;
A number of entities come together and distribute risks among themselves Risk Reduction; This
is controlling of risk to minimize the impact of loss e.g. buffering a vehicle to make it stronger
against the impact. Risk Retention; If an activity is central or integral to your program or your
project, risk managers might just decide to accept the risk as they look for ways to mitigate the
risk in future. Diversification of Resources; This is putting aside resources in several projects of
business in order to compensate for losses. The objectives of risk management are as follows:
Pre-loss Objectives- refer to aim or goal that focuses on preventing a loss from occurring Post-
loss Objectives -– these are objectives that aim at rebuilding the situation back to normal after
the risk has happened.
To conclude, project risks can be managed to successful conclusions through the
following actions; establishing and maintaining management commitment to performing risk
management on all capital projects, starting the risk management process early in the project life
cycle, include key stake holders in the process, evaluate project risks and risk responses
periodically during the project life cycle, Develop risk mitigation plans and update them as the

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project progresses, follow through with mitigation actions until risks are acceptable, effectively
communicate to all key stake holders the progress and changes to project risks and mitigation
plans.
References
Wolke, T., 2017. Risk Management. Walter de Gruyter GmbH & Co KG.
Hopkin, P., 2017. Fundamentals of risk management: understanding, evaluating and
implementing effective risk management. Kogan Page Publishers

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