WELCOME TO

INSR-6008:
RISK ASSESSMENT AND
TREATMENT
  Course will consist of 2 hours in class and one hour
INSR-6008: Risk
online. The online hour replaces one hour of face to
Assessment and face class time thus consists of learning activities that
Treatment must be completed individually or in groups.
 Marks are assigned according to your class schedule.
• Blended Course
 Please note there are eight (8) online discussions
/assignments that are marked as on a rubric.
 Only seven will count, one is dropped. They are worth
5% of your final grade for a total of 35%. The one
dropped will be selected randomly at the end of the
course (method is professors choice).
INSR-6008: Risk  There are three (3) mini case studies each worth 5% of
your final grade.
Assessment and  Along with the online discussions / assignments and
Treatment cases there will be a mid term and final examination,
each worth 25% of your final grade.
• Course
 The examinations will be given during class time.
Requirements  As well you are expected to come to class prepared to
discuss the material indicated and participate in class
discussions and activities.
INTRODUCTION TO RISK
ASSESSMENT AND TREATMENT
INSR-6008: Risk Assessment and Treatment
Chapter 1
Cyndi Hornby, CIP, CRM
Learning Outcomes

1. Describe the nature of risk assessment and the risk assessment process.
2. Describe the major risk identification and analysis techniques.
3. Describe the risk treatment process and risk treatment techniques.
4. Describe the following accident analysis techniques;
 Sequence of events (domino theory)
 Energy transfer theory
 Change analysis
 Job-safety analysis
Learning Outcomes

5. Describe system safety, its primary purpose, and its advantages.

6. Explain how to implement the following loss control techniques for
hazard risk;
 Avoidance
 Loss prevention
 Loss reduction
 Separation, duplication, and diversification
Risk Assessment Defined
 The risk assessment process provides all levels of management with a
picture of the risks affecting an organization
 Through risk management, an organization can focus on the importance
of assessing risk to improve organizational results
 Risk management is the process of making and implementing decisions that
enable an organization to optimize its level of risk
 Risk is defined as the uncertainty about outcomes that can be either
negative or positive
 Risk can be defined as a hazard risk, an operational risk, a financial risk, or a
strategic risk
Goals of Risk Assessment
 The goals are to inform management at all levels of the risks facing an
organization
 How those risks affect the organization’s ability to meet objectives
 To identify potential risk treatment options
 Must consider not only existing operations but an emerging threats or
opportunities
 Identify uncertainties and quantify the upsides and downsides of those
uncertainties
 Through analysis can determine the likelihood and consequences of
events
Risk Assessment Process
 Must understand the organization’s risk appetite and risk tolerance as
well as their own accountability within the process
 Risk appetite is the total exposed amount that an organization wishes to
undertake on the basis of risk-return trade-offs for one or more desired
and expected outcomes
 Risk tolerance is the amount of uncertainty an organization is prepared
to accept in total
 or within a certain business unit or particular risk category or for a specific
initiative
Risk Assessment Process
 Those involved in the process must understand the tools and techniques
available for assessing and treating risk
 These vary based on the organization
 Can be qualitative or quantitative
 Include questionnaires, checklists, cause-and-effect analysis and failure analysis
 Qualitative methods, such as surveys or interviews are more subjective and
subject to interpretation
 Quantitative assessments are objective and based on numerical data and
calculations
 Most effective approach is to use a combination of both
Risk Assessment Process
 A top-down assessment involves senior management and/or the
organization’s board of directors
 Focuses on strategic issues that could affect the organization’s ability to meet
objectives
 Identify major risks that affect the entire organization
 Bottom-up assessments are conducted at business level and are more
operational in nature
 Identify risks that affect the ability to meet day-to-day objectives
Risk Identification
 Involves reviewing all aspects of the internal and external environments
 to identify events that could either improve or inhibit the organization’s
achievement of their objective
 Uncover a complete inventory of possible risks
 All risk sources and risk exposures should be examined
Risk Analysis
 Entails investigating the identified risks to make decisions regarding
whether risk treatment is needed and which techniques should be used
 Considers the causes and sources of risk
 as well as positive and negative impacts
 and the likelihood of those impacts
 A risk map can be used to evaluate risk analysis results
 A risk map is a template depicting the likelihood and potential impact
/consequences of risk
Categories of Risk Identification and
Analysis Techniques
Categories of Risk Identification and Analysis
Techniques
 The type of technique used depends on the nature of the risk, the amount of
data available and other factors
 Multiple techniques can be used throughout the risk identification and analysis
process
 Risk identification and analysis techniques may include;
1. Questionnaires and Checklists
 Easiest risk identification techniques to apply
 A starting point or a summary
 The disadvantages of this technique is that
 they do not produce quantitative results
 Not all risks may be identified
 Potential problems may be overlooked
Categories of Risk Identification and Analysis
Techniques
 Risk identification and analysis techniques may include;
2. Workshops
 A facilitator leads the discussion and takes the group though the process of
identifying and analyzing the risks
 Disadvantage is that the opinion of senior management make take precedent over other
stakeholders
 Brainstorming can be used to identify risks
 Advantage is that all ideas are encouraged, leading to a more creative approach
 Delphi Technique is a form of brainstorming that relies on a panel of experts to reach a
consensus opinion on an issue
 Advantage is this approach includes a wider range of opinions, use widely dispersed experts
 Disadvantage is that the process can be time consuming
Categories of Risk Identification and Analysis
Techniques
 Risk identification and analysis techniques may include;
3. Cause and Effect Analysis
 Identifies possible causes for an event or problem
 Formal approach to examine all of the possible causes and subcauses of a given
issue
 Uses a template that graphically illustrates all of the causes and their effects
 Determines the root cause or examines interrelations within a process that
produces an unintended result
 Included the “5 Whys technique” and the “Fishbone diagram”
 Examines problems that are relatively simple to construct
 Disadvantage is that participants may stop the process before all underlying causes have
been identified and examined
Categories of Risk Identification and Analysis
Techniques
 Risk identification and analysis techniques may include;
4. Failure Analysis
 Focuses on identifying the causes of failure to prevent recurrences in the future
 May include not meeting sales or production goals, breakdown of equipment, physical losses
 Examples of techniques that fall under this category;
a. Hazard and operability studies (HAZOP)
 Uses a team of specialists from different operational areas to study a process ior procedure to
examine how failure can result in a hazard
b. Fault Tree Analysis (FTA)
 Identifies a specific event, referred to as the “top event” and then analyzes factors that
contribute to this event
c. Failure Mode and Effects Analysis (FMEA)
 Examines each component within a system or process to identify possible modes of failure and
how these failures effect the system
Categories of Risk Identification and Analysis
Techniques
 Risk identification and analysis techniques may include;
5. Future States Analysis
 Seeks to determine what risks may develop in the future
 Examines how the current environment may be influenced by emerging
developments
 New technology, new competitors entering the market
Categories of Risk Identification and Analysis
Techniques
 Risk identification and analysis techniques may include;
6. Strategy Analysis
 Conducted as part of an organization’s strategic planning process
 Sets the overall vision, mission and goals for the organization
 Long term planning
 Identify, analyze and evaluate the potential risks to the strategy
 Commonly used technique is the SWOT analysis
 Strengths and weaknesses in the internal environment
 Opportunities and threats in the external environment
 Closely aligned with the organization’s strategic plan to identify
uncertainties that would effect the ability to meet the objectives
Risk Treatment
Risk Treatment
 Risk treatment decisions are based on the results of the risk
assessment
 Available risk treatment techniques include;
 Avoid the risk
 Modify the likelihood and/or impact of the risk
 Transfer the risk
 Retain the risk
 Exploit the risk
Risk Treatment Process
 Risk treatment involves making decisions based on the outcome of
the risk identification and analysis
 Treatment options will vary
 Negative and positive effects of the uncertainty on the organization should
be consider
 Goal is to modify identified risks to assist the organization in meeting its
goals
 Process is continues and involves examining each risk option in terms
of whether it leads to a tolerable level of residual risk
 Risk remaining after actions to alter the risk’s likelihood or impact
Risk Treatment Process
 Also involves selecting and implementing a risk treatment option(s)
and measuring the effectiveness of each option selected
 Techniques are not mutually exclusive
 May require a combination of techniques
 Emerging risks must be identified and assessed
 Should document the process and designed the choosen risk options
including;
 People responsible for implementing the plan
 A timetable for implementing the treatment options
 Monitoring and reviewing the established plan
Risk Treatment Techniques
 Techniques apply to hazard, operational, financial and strategic risks
 Risk treatment options fall into the categories of avoidance,
modification, transfer, retention or exploitation
 Speculative risks can result in both negative and positive
consequences
 Pure risks are a chance of loss or no loss, but no chance of gain
 Techniques would include modifying the likelihood of an event to
increase the opportunity to meet objectives while also considering
treatment options for potential negative outcomes
Risk Treatment Techniques
 Avoidance is a technique that involves ceasing or never
undertaking an activity so that the possibility of future gains or
losses occurring from that activity are eliminated
 Loss Prevention is a risk control technique that reduces the
frequency of a particular loss
 Loss Reduction is a risk control technique that reduces the severity
of a particular loss
Risk Treatment Techniques
 Risks can be transferred or shared through contractual
arrangements or joint venture with other organizations
 Insurance is the primary technique used to transfer risks
 Non insurance contractual risk transfers can be used to transfer financial
consequences
 Risk retention is a risk financing technique that involves
assumption of risk in which gains and losses are retained within the
organization
 Is often used in combination with risk modification and transfer
Traditional Accident Analysis Techniques
 Assist risk managers in determining possible causes of accident to
help select appropriate risk control techniques
 By analyzing the causes of past accidents you can select and implement
risk control techniques to prevent future accidents or to reduce the losses
associated with accidents that do occur
 Accident Analysis
 The focus of causation centers on unsafe act or unsafe condition
 Accidents have a direct cause that is usually an unplanned release of energy
that cannot be safely absorbed by a person or object
 Basic causes include poor management, safety policy or personal or
environmental factors
Accident Analysis Techniques
1. Sequence of Events (Domino Theory)
 Developed by H.W. Heinrich
 He believed that the chain of accident factors consisted of;
 Ancestry and social environment
 Fault of person
 An unsafe act and/or a mechanical or physical hazard
 The accident itself
 The resulting injury
 Removing any of the four dominoes preceding the injury or illness will
prevent it
Accident Analysis Techniques
2. Energy Transfer Theory
 Developed by Dr. William Haddon Jr.
 This theory is an approach to accident causation that views accidents as
energy that is released and that affects objects; including living things, in
amounts or at rates that the object cannot tolerate
 Focuses on controlling released energy and/or reducing the harm caused
by that energy
Accident Analysis Techniques
3. Technique of Operations Review (TOR) Approach
 Developed by D.A. Weaver
 An approach to accident causation that views the cause of accidents to be
a result of management’s shortcomings
 TOR identifies particular faults of an organization’s management and
groups these fault into categories such as;
 Inadequate coaching
 Failure to take responsibility
 Unclear authority
 Inadequate supervision
 And others
Accident Analysis Techniques
4. Change Analysis
 An analysis that projects the effects a given system change is likely to have
on an existing system
 Asks “what if” questions and projects the consequences for each of those
changes and for all feasible combinations of change
 Can also apply to various combinations of change in systems
Accident Analysis Techniques
5. Job Safety Analysis
 An analysis that dissects a repetitive task, whether performed by a person
or a machine, to determine potential hazards if each action is not performed
 Is one of the most universally applicable and versatile techniques
 Each job (activity or operation) is broken down into individual sequential
steps
 Hazards associated with each step are identified
 Controls are defined
 Responsibility for implementing each is assigned
System Safety Analysis
System Safety Analysis
 Organizations can be viewed as systems
 Many aspects of organizations (machinery, structures, transportation
networks, production processes, and services) can be viewed as systems
 Duty is to keep these systems operating safely and effectively
 A safety system is a safety engineering technique also used as an
approach to accident causation that considers the mutual effects of the
interrelated elements of a system on one another throughout the
system’s life cycle
 Looks at the organization as a whole to identify potential sources of loss
 Accident occurs when a component of the system malfunctions
 Predicts how malfunctions can occur to prevent or reduce the consequences
 The Concept of a System
 By understanding the features of a system, a risk manager can be more
effective at protecting the integrity and reliability of any system
 All systems have these four features;
1. Components
 If physical elements are impaired can jeopardize the system’s ability to perform
 All systems contain subsystems
 Risk manager must understand what all systems and subsystems are, how they interact,
how the failure of one subsystem can endanger others
 Systems are powered or moved by energy sources
 Must control the application of energy and the intended movement of the system’s
physical elements
 The Concept of a System
 All systems have these four features;
2. Purpose
 Must know the purpose of each system and the components within it
3. Environment
 The system operates in an environment that affects it, and is affected by it
 The immediate physical environment
 The organizational (management) environment
 The socioeconomic / legal environment
 The Concept of a System
 All systems have these four features;
4. Life Cycle
 There are five phases in the life cycle of any system over time
 A system-oriented approach designs each product or service so that is disposal
or obsolescence creates the minimum amount of hazardous waste or
environmental harm
 The phases include;
 The conceptual phase – basic purpose and design are formulated
 The engineering phase – design is constructed and prototypes tested
 The productions phase – the actual system is created
 The operational phase – the system is implemented
 The disposal phase – the system reaches the end of its usefulness and is disposed of
Safety System Advantages
 Three advantages of applying the system safety to loss control
programs;
1. By considering how an accident impairs various systems a risk
manager can follow an orderly process for developing loss control
measures the improve the reliability of interrelated systems
2. Because systems differ in scope the analysis enlists the cooperation
of many people in and out of the organization
3. Reduces accident frequency and severity by defining and preventing
events that lead to a particular type of accident
Loss Control Techniques for Hazard
Risk
Loss Control Techniques for Hazard Risk
 Hazard risks are pure risks that arise from property, liability or
personnel loss exposures
 Are generally the subject of insurance
 Loss control techniques must be selected and implemented to prevent
future accidents and to reduce their effects
 Loss control techniques include these;
 Avoidance
 Loss prevention
 Loss reduction
 Separation, duplication, and diversification
Loss Control Techniques for Hazard Risk
Avoidance
 A risk control technique that involves ceasing or never undertaking an

activity so that the possibility of a future loss occurring from that

activity is eliminated
 Avoidance has limited application
 Many loss exposures are automatically created and cannot be avoided
Loss Prevention
 Is a loss control technique that reduces the frequency of a particular

loss without necessarily affecting loss severity

 Does not eliminate all chance of loss
Loss Control Techniques for Hazard Risk
Loss Reduction
 Reduces the severity of a particular loss

 Must assume that the accident has occurred and consider what could have
been done, either before or after the accident, the reduce the size or extend
of the resulting loss
 Considers pre-loss and post-loss measures
 Pre-loss measure generally reduce the amount of property damage or
number of people suffering from a single event
 Post- loss measures focus on emergency procedures, salvage operations,
rehabilitation services or legal defense to counter the effect of the loss
Loss Control Techniques for Hazard Risk
 Separation, Duplication and Diversification
 Separation is a risk control technique that isolates loss exposures from
one another to minimize the adverse effects of a single loss
 Duplication is a risk control technique that uses backups, spares or
copies of critical property, information, or capabilities and keeps them
in reserve
 Diversification is a risk control technique that spreads loss exposures
over numerous projects, products, markets or regoins