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ELEMENTS OF RISK MANAGEMENT Part B: ELEMENTS OF RISK MANAGEMENT

   

Added on  2021-06-17

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Swinburne University of TechnologyFaculty of Engineering and Industrial ScienceAssignment 3: RSK80003 Risk Perception and Analysis[Type student name here][Type course of study here][Type submission date here]

PART A: ELEMENTS OF RISK MANAGEMENT1.(a) Pro-active risk management refers to identifying threats and taking safety measuresbefore the risks occur [ CITATION Ben04 \l 1033 ]. The difficulties are dealt with in advanceby devising business strategies aimed at lofty goals and at the same time taking all thenecessary precautions in risk mitigation. For example, installing a burglar proof system ina house rather than running the risk of losing personal assets to burglaries. Reactive riskmanagement is a response based response which involves taking action after the riskoccurs or a problem is identified after an audit, responding immediately to safety events,for example, fire-fighting after a fire outbreak. (b) Process of risk managementi.Identify the risk- This step describes, uncovers and recognizes the risk.A Project Risk Register is then prepared. The Risk Register is a documentthat helps track problems as they arise making it possible to do pro-activerisk management to mitigate the risks. This may also happen afteroccurrence of a risk and reactive measures taken to contain it.ii.Understanding the risk significance- Amount of loss that could beincurred in case of occurrence of the risk is evaluated under this step. Thisis significant as the amount and kind of investment to be made in pro-active measures is decided after significance consideration. Low loss riskswill tend to receive lesser attention than high profile ones. For example,between maintenance of office stationary and installation of a fire controlsystem, the former will need more resources.iii.Prioritizing risks- The risks are analyzed and classified according topotential impact and the amount of attention that each deserves isdetermined. The ones that require immediate attention are taken care offirst and the others reserved for a later time. 2

iv.Owning the risks- This involves assigning individuals to oversee theentire process of the risk mitigation as per priority. The assignedindividuals will always be on watch-out and in case of occurrence of therisk, be at the forefront in containment exercise. Safety drills that relate totheir assigned risks will be led by them at all times. Risk mitigation istherefore institutionalized. v.Responding to the risks- Involves coming up with measures aimed atmitigating the impact of the risk that has occurred. If the risk is new, thatis, if it is not included in the risk register and has never occurred before,reactive measures are taken to curb it, after which pro-active measures areput in place to prevent damage in case it happens again. vi.Recognizing risk control measures available- Includes understandingand applying the right insurance cover for the risk. A statement is made,stating the process-oriented measures in place, to be applied in case ofoccurrence of the risk. This is well detailed, with the roles of every playerclearly defined so as to make it easy to deal with occurrence of the risk.vii.Risk’s control improvement possibilities evaluation- Anyimprovements on the measures put in place is evaluated after putting intoconsideration financial, legal and moral issues. Loop holes that could givethe insurance company an allowance to file a negligence suit to avoidcompensation of damages are evaluated and sorted out. The activities ofthe company are also regularly checked and ensured to be in line with thesurrounding community’s moral values. viii.Monitoring results- After a proper response to the risk, the task now is toregularly track the progress of the project as per the response adopted to3

ensure that all is well. A graph can be kept to keep tabs on the frequencyof occurrence of the risk and help evaluate the pro-active measures put inplace. If they are effective, they are left in operation. If they are not,improvements are made, or new systems altogether introduced.ix.Reviewing the process-The whole process undertaken is reviewed so asto establish whether it was satisfactory or not according to the results.This helps the company make plans for the future, mostly involvinginvestment in a better risk management system, or if the current one issatisfactory, such investment can be directed elsewhere.(c) The main types of sources of risks in an organization are: i.Internal environment- The trade that the organization deals in is the firstsource of its risks. For instance, a company dealing in manufacture andstorage of hydrochloric acid risks extensive damages in case of explosionsand resulting fire. Employee motivation is also an internal environment factor that couldpose risks to the company. If they are not well remunerated for their hardwork, they may end up selling the company trade secrets to rival firms. Organization and operational structure could also pose a risk internally. Ifthere is no coordination among the top officials when working, then thecompany may not hold for long until it faces dissolution.Innovation is important as it helps the company keep in competition withother rival firms. If a firm does not improve its products over time, it mayeasily become obsolete.ii.External environment- Factors like competition may compel a company toengage in certain measures, in an attempt to cope with intensecompetition, thereby risking the very existence of the company. This mayinvolve reducing the prices of its products so as to attract customers,which can have positive or more likely, negative impacts. 4

Government policy (as an external business environment)- Sometimes agovernment can pass a policy that can kick a company out of business,especially if its operations are rendered illegal under the new laws passed.Certain regulations may also force the company to stop certain operationswhich may eventually translate to reduction of profit margins and losses.The company’s legal environment may be a source of risks to the firm.The company should be flexible and easily adapt to changing regulations,else it will fall prey to law suits and get itself in settlement meetings thatcould bankrupt it.(d) A Risk register is a document created in the preliminary steps of risk management toidentify certain risks as they occur, and other risks as a result of these initial risks, makingit possible to make effective pro-active measures. The contents are a disparate collectionincluding:i.Description of risks- Within the project risk register, each risk that had beenidentified as a potential threat to the business is clearly defined. ii.Risk triggers- The register lists all the forces that could bring about occurrence ofthe risk in question. All employees are informed about all these triggers so as tobe co-watchdogs with the rest of the experts assigned to check on these risks. If acertain amount of capital owned by the firm could make it go bankrupt, theneveryone is motivated to work hard to ensure that that level is never reached. iii.Steps to mitigate the risks- This encompasses insurance covers, installation ofsafety systems e.g., fire systems, security cameras and alarms. It also includes theconduct of the whole body of employees in case of occurrence of a risk such as afire. Clear passage ways are created, and necessary indications made usingposters, to allow for orderly evacuation and to allow for the installed systems toperform their duty.iv.Impact of the risks- The register also includes the kind of damage to be expectedin case of occurrence of the risk. Hence, it helps in putting in place measures toensure that the high loss risks never occur. Early planning is also made just incase the risk occurs, to allow for normal business operations. For example, if a5

company deals in highly flammable products, then investment in insuranceagainst damages and losses due to fire is done. In case of a fire, which could burndown the entire premises, the firm is still covered and will not lose much.v.Likelihood or probability of the risk occurring- Likelihood and frequency ofoccurrence of the risk is indicated. As a result, the firm is always ready to put inimmediate counter-measures in case pro-active measures fail to mitigate the risk.Occurrence of the risk will never take the business by surprise. For instance, if thepremises get flooded during the rainy seasons, then effective drainage systems areput in place to take care of the problem. If the drainage system fails, the firm willhave already invested in water pumps and outside drainage systems to help theoverwhelmed internal drainage systems. vi.Risk matrix score of the risk- This score will determine whether the risk is low-loss or high-loss. In case of the latter, safety investment is channeled elsewherewhereas if the former is the case, it will receive more attention in terms ofinvestment. vii.Risks left after mitigation/ The residual risk- After mitigation of a risk, there arenormally small other risks that result. They are called residual risks. For instance,if a major fire occurs, there are fumes which still hang in the air and are just asdangerous as the fire when inhaled. The register therefore keeps an account of allthese residual risks and the company puts in measures to take care of suchresidual risks that is, buying nose and mouth covers for employees. viii.The ownership of the risk- In the register is included a list of employees entrustedwith the responsibility of being on the watch-out for specific risks, and being onthe forefront in mitigating them in case they occur. ix.The risk identification- Each risk is assigned a unique identification. This servesboth in easy identification in case of occurrence, and making the employees getused to them in a positive manner. Employees will take certain occurrences asnormal happenings and continue with their work. x.The acceptable probability after treatment- After a risk occurrence has been takencare of, there is still the probability of the risk occurring again, acceptableprobability after treatment. Such information is important as counter measures are6

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