Risk Perception and Analysis - Desklib

RISK PERCEPTION AND ANALYSIS
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Risk Perception and Analysis
Part A Elements of Risk Management
Question One
a) Reactive risk management involves the identification of risks and measures to curb or
reduce them way after they have already occurred based on the audit and evaluation
findings after its occurrence. On the hand, proactive risk management involves
identification of a probably risk way before an incident occurs after relevant observations
and measurements have already been obtained (Norrman and Jansson, 2004, p. 434-456).
b) Risk management process has various aspects in a logical manner. First, we start by
assessing the risk faced and this involves identification, measurement, and financing of
the risk (Jorion, 2001).Once that is in order, control measures are adopted and then the
risk portfolio is monitored.
c) The main type of sources of risk in an organization includes systematic and diversifiable
risk, liquidity risk, credit risk, business risk and market risk (Jüttner, Peck, and
Christopher, 2003, 197-210).
d) Risk register which is also known as risk log is a tool used to document risks and the
relevant actions to be taken so as to manage them. Its contents include a brief description
of each risk, risk category, risk rating, the probability of occurrence of a risk and common
mitigation steps in case of occurrence (Cassar, G., 2004, p. 265).
e) This is because general risks arise from external events that the organization has no
control over such as fire whereas the operational risk can be controlled as they arise from

the failure of internal processes, individuals, and scheme or even outside events
(Wipplinger, 2007, p. 397).
f) The achievement of desired outcomes, efficient use of resources in the organization,
presence of transparency and clear accountability in the organization (Tao, 2010, p. 1-4).
g) Risk management system involves the identification, quantification, and management of
risks that a firm is facing. On the other hand, systematic approach to risk management
mainly involves being ready with contingency plans just in case any type of risk faces the
organization at any time(Stewart and Roth, 2001, p. 145).
h) The outcome of events in an organization is always uncertain because various levels of
risk are involved. This, therefore, calls for proper risk governance through a proper risk
management system. The system should be in a position to identify, measure, finance,
control and monitor risk efficiently.
Question Two
Exercise Two
Risk can be of high consequence or low consequence depending on the amount of uncertainty
involved. One has to consider the amount of risk he is able to take and the amount he is
comfortable taking in regards to his financial level. Various types of risk have different levels of
consequences to an organization
Lost time injury is that amount of time lost when an employee is not able to perform his duties
for a day or a shift because of an injury he sustained during work. This puts the organization at a
risk of low labor turn out which might decline the levels of production and hence putting the
organization at a risk of lesser profits or even loss. The amount of lost time injuries that arise

during the reporting period is what levels up to the lost time injury frequency rate. However this
does not create much of a risk as the company could easily maintain a good safety culture, train
the employees on how to keep safe from any types of injuries and also the organization could
conduct a regular hazard assessment system (Blewett, 1994, p. 1-55). Moreover, another
employee could be called upon to perform the duties of the injured employee. This, therefore,
shows that lost time injury frequency rate is not a high consequence value risk to an organization
as measures can be put to control its consequences. As long as the organization has an effective
risk management system, LTIFR will not be much of a problem in the risk measurement and
control.
Exercise Three
Every organization requires a proper risk management committee for its risks governance. A
high-quality risk governance will be full of transparency and clear accountability as well as
efficiency in the use of resources and achievement of desired outcomes.
A competent management team prefers to put the organization in face of lower losses as it is the
main aim of the organization to make profits. It also has to ensure that the cost involved in
identification, initiation, transfer of the risk and enforcement are low as possible as this form the
transaction costs(Stevenson and Hojati, 2007). These include the financial distress costs, the cost
required for issuing external financing, cost of implementing risk management and costs of
ensuring a strong risk profile.
In order for the company to avoid high losses resulting from various types of risk, the
organization has to ensure that proper risk management measures are put in place. The higher the
cost invested in this process of risk governance the higher the probability of the organization