INTRODUCTION TO RISK

MANAGEMENT

MODULE 1

TOPICS:
APPROACHES TO DEFINING RISK
T Y P E S A N D I M PA C T O F R I S K
RISK MANAGEMENT
APPROACHES TO DEFINING RISK

• Risk is as follows: ‘a chance or possibility of danger, loss, injury or

other adverse consequences’, and the definition of at risk is
‘exposed to danger’.
• risk is used to signify negative consequences. However, taking a
risk can also result in a positive outcome. A third possibility is that
risk is related to uncertainty of outcome.
TYPES OF RISKS
• compliance (or mandatory) risks;
• hazard (or pure) risks - are certain risk events that can only result in negative
outcomes.
• control (or uncertainty) risks;
• opportunity (or speculative) risks.

Therefore,
– Embrace opportunity risks
– Manage uncertainty risks
– Mitigate hazard risks
– Minimize compliance risks
RISK CLASSIFICATION SYSTEMS

Risks can be classified according:

- the nature of the attributes of the risk, such as
timescale for impact, and the nature of
the impact and/or likely magnitude of the risk.
- the nature of the impact
- the component or feature of the organization
that will be impacted.
IMPACT OF RISK ON ORGANIZATIONS
Level of risk
It is increasingly understood that the
explicit and structured management of risks
brings benefits. By taking a proactive approach
to risk and risk management, organizations will
be able to achieve the following four areas of
improvement:
Strategy, because the risks associated with
different strategic options will be fully
analyzed and better strategic decisions will
be reached.
 Tactics, because consideration will have
been given to selection of the tactics and
the risks involved in the alternatives that
may be available.
 Operations, because events that can cause
disruption will be identified in advance
and actions taken to reduce the likelihood
of these events occurring, limit the
damage caused by these events and
contain the cost of the events.
 Compliance will be enhanced because the
risks associated with failure to achieve
compliance with statutory and customer
obligations will be recognized
 Impact of hazard risks
Hazard risks undermine objectives, and the
level of impact of such risks is a measure of
their significance.
Hazard risk management is closely related
to the management of insurable risks.
Remember that a hazard (or pure) risk can
only have a negative outcome.
Hazard risk management is concerned with
issues such as health and safety at work, fire
prevention, avoiding damage to property
and the consequences of defective products.
Hazard risks can cause disruption to
normal operations, as well as resulting in
increased
costs and poor publicity associated with
disruptive events.
Hazard risks are related to business
dependencies, including IT and other
supporting services.
Theft and fraud can also be significant
hazard risks for many organizations. This is
especially true for organizations handling
cash or managing a significant number of
financial transactions
 Risk and reward Attitudes to risk

Another feature of risk and risk Different organizations will have different
management is that many risks are taken attitudes to risk. Some organizations may
by organizations in order to achieve a be considered to be risk averse, whilst
reward others will be risk aggressive.

A business will launch a new product Risk attitude indicates the long-term view
because it believes that greater profit is of the organization to risk and risk
available from the successful marketing of appetite indicates the short-term
that product. willingness to take risk.
RISK MANAGEMENT
The events that can impact an organization may inhibit what it
is seeking to achieve (hazard risks), enhance that aim
(opportunity risks), or create uncertainty about the outcomes
(control risks). Risk management needs to offer an integrated
approach to the evaluation, control and monitoring of these three
types of risk.

The key components of a successful risk management

framework are the communications and reporting structure
(architecture), the overall risk management strategy that is set by the
organization (strategy) and the set of guidelines and procedures
(protocols) that have been established.
THE ACTIVITIES ASSOCIATED WITH RISK MANAGEMENT ARE AS
FOLLOWS:

recognition of risks;
rating of risks;
ranking against risk criteria;
responding to significant risks;
resourcing controls;
 reaction (and event) planning;
reporting of risk performance; and
reviewing the risk management system.
 At this point, it may be said that too much RISK MANAGEMENT
attention and concern about risk and risk
management will cause the organization to deform
SOPHISTICATION
its operations. To avoid that, in summary
unaware of obligations – INFORM;
awareness of non-compliance – REFORM;
actions to ensure compliance – CONFORM;
achieve business opportunities – PERFORM;
inactivity caused by obsession – DEFORM.
THE DEVELOPMENT IN RISK MANAGEMENT
APPROACH CAN BE SUMMARIZED AS FOLLOWS:
 Compliance management must not be undertaken in a fragmented
manner, even if excellent standards of compliance are achieved.
 Hazard management specialists may find that there has been a
trend towards a desire to retain more insurable risks (and buy less
insurance) as a result of a more holistic approach to risk
management.
 Control management specialists must not squeeze entrepreneurial
spirit and effort out of the organization.
 Strategic planners must recognize that risk management tools and
techniques can contribute to better strategic decisions and the
successful exploitation of business opportunities.
PRINCIPLES OF RISK
MANAGEMENT
The main principle of risk management is that it
delivers value to the organization. It is
suggested that a successful risk management initiative
(and framework) will be:
proportionate to the level of risk within the
organization;
aligned with other business activities;
comprehensive, systematic and structured;
embedded within business procedures and
protocols;
dynamic, iterative and responsive to change.
THANK YOU FOR LISTENING !!!

Group 1 members:
Acquiatan, Ramil C.
Alebio, Jessel B.
Alimboyong, Ella O.
Aurelio, Joseph N.
Avila, Jimlyn C.
Balansag, Mariel A.
Bandoy, Crezelda Mae V.
Beniga, Meni Rose A.
Blasquez, Alvim A.
Cabuga, Freitchel S.

Reference:
Hopkin, Paul(2017). Fundamentals of Risk Management.
Kogan Page Limited: United Kingdom.