Risk Management Made Simple

Risk is something that most people prefer not to think about.  Today however, management at all levels must balance between risk and reward when making strategic and operational decisions.  Increasingly, risk management is becoming a core management competency.  Here is a simple overview to take some of the 'mysteries' out of risk management.

What is Risk?

The chance of something happening due to a hazard or threat that will adversely impact your business activity.

What is a Risk Management System?

A systematic methodology used to identify and assess risks in order avoid, reduce, transfer or control the risks.

What are the benefits of risk management?

·          Forward planning for events that could have an adverse impact on the business.

·          An effective early warning system to poor operational/financial performance.

·          Assists in internal/external compliance to policies, guidelines, legal requirements. regulations

·          Safeguards the organisations assets, finances and reputation.

What are the key steps in the Risk Management process? 

Establish Context - Define the area you want to risk manage.  Consider the objectives of the area and stakeholder expectations.  If undertaking an organisation wide risk management exercise, break down organisation into risk areas. 

Identify All Risks - List all the potential risks that are a threat to the organisation.  Consider internal & external risks.  Risk can be financial, operational, physical or moral.

Analyse Each Risk - For each risk identified assess the likelihood of a risk occurring and impact of the risk.  These two factors will then determine the level of risk.  Extreme risks require urgent attention, High risks require ongoing attention, and Moderate/Low risks require periodic monitoring.

Source: Australian/New Zealand Standard for Risk Management AS/NZS 4360:1999    

Evaluate Each Risk - Identify and assess the controls in place to manage the risk in light of the level of risk.  If risk is acceptable, monitor as required.  If risk is unacceptable, enhance level of control

Treat Each Risk - If risk is unacceptable, treat the risk by avoiding the risk, transferring the risk or enhancing level of control.  Retain the risk only if other options are not feasible.  Develop a plan to treat risks.  Communicate and assign responsibilities and dates to each risk/control/review.

Monitor & Review - Because the environment is constantly changing, the risk management strategy needs to be monitored and reviewed regularly.