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Introduction to risk management by Derek Hendrikz covers uncertainty, standard deviation, return on investment (ROI), sources, events, outcomes, probability, impact, contingency and mitigation. www.derekhendrikz.com
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Copyright © 2014
Derek Hendrikz Consulting
www.derekhendrikz.com
…the absence of certainty in a future or current event defines the risk of such event…
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…thus, standard deviation is an appropriate measure of risk…
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…as the level of risk increases the expected return should increase…
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doubt creates uncertainty
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when it becomes difficult to predict the outcome of an specific event, uncertainty exist www.derekhendrikz.com
imperfect knowledge is therefor the origin of uncertainty www.derekhendrikz.com
risk management is dependent on the information that one has to evaluate the likelihood of outcomes and one’s ability to evaluate such www.derekhendrikz.com
…a structured approach to managing uncertainty related to a threat…
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…a sequence of human activities including risk assessment, strategies development to manage
it, and mitigation of risk using managerial resources…
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…risk management strategies include transferring the risk to another party, avoiding the risk, reducing the
negative effect of the risk, and accepting some or all of the consequences of a particular risk.…
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Risks can be both internal – arising from within the organisation – and external –
arising from the context or environment of the organisation. www.derekhendrikz.com
risk management decreases obstacles to achievement of corporate objectives, growth and the maximization of shareholders wealth
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effective risk management results in more efficient risk-return trade-off
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risk management fundamentally supports the core function of management
Copyright © 2012 Derek Hendrikz Consultingwww.derekhendrikz.com
risk sources, events&
outcomes?????
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Source •Potential
Event •Occurrence
Outcome •Consequence
Possible sources of risk within your organization:
Natural threats (lightning, drought, floods, etc.) Environmental threats (competitors, markets,
etc.) Business process threats (inefficient processes,
unproductive departments, etc.) Information threats (outdated systems, no
knowledge management, etc.) Decision threats (unqualified & unexperienced
management) Safety hazards (slippery walkways, oil drums in
wood sheds, etc.)Copyright © 2012 Derek Hendrikz Consultingwww.derekhendrikz.com
Possible risk events within your organization:
Fire; Accident; Explosion; Drop in market share; Customer refusing to buy; Etc…
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bound by specific time and place
Possible risk outcomes within your organization:
Damage or loss of assets; Injury or death of people; Financial loss; Information loss; Legal liability claims; Loss of intelligence; Loss of energy; Failure to achieve organisational
outcomes; Etc……
Copyright © 2012 Derek Hendrikz Consultingwww.derekhendrikz.com
Risk Triggers:
Level 1 Triggers = We are warned before the event!!!
Level 2 Triggers = We are warned during the event!!
Level 3 Triggers = We are warned after the event!
RISK
DISASTER
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Basic Assumptions Regarding the Probability & Impact of Risk…
▪ It definitely will happen.
▪ It probably won’t happen.
▪ It doesn’t matter anyway.
▪ Disaster if it happens.
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The Probability / Impact Risk Matrix
Disaster
Doesn’t matter
Probably won’t happen
Definitely will happen
1
2
3
4
5
1 2 3 4 5
Impact
Event
Probability
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Probability / Impact Ratio…
Pro
babi
lity
Impact
NoRisk
LowRisk
HighRisk
DisastrousRisk
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ContingencyPlan
Mitigation
Plan
Risk / Disaster Relationship…
Pro
babi
lity
Impact
RiskManagement
DisasterManagement
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Mitigation:
What can we do to mitigate (lessen
the harshness) the risk in terms of
frequency and severity...
Mitigation plans are mostly part of a
risk management initiative.
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Contingency:
What can we do to manage an
unplanned event or occurrence when
it happens or how we can deal with it
once it has happened...
Contingency plans are mostly part of
a disaster management initiative.www.derekhendrikz.com
Mitigation / Contingency Ratio…
Miti
gatio
n
Contingency
Un-controlledRisk
ProbabilityReduced
ControlledRisk
ImpactManaged
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The Risk Management Process:
Step 1: Risk Identification· Analyse the project to identify sources of risk
Step 2: Risk AssessmentAssess risk in terms of:· Severity of impact· Likelihood of occurring· Controllability
Step 4: Risk Response Control· Implement risk strategy· Monitor and adjust plan for new risks· Change management
Step 3: Risk Response Development· Develop a strategy to reduce possible damage· Develop contingency plans
Known Risks
Quantified Risk
Managed Risk
New Risks
New Risks
New Risks
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A Model for Risk Management:
Copyright © 2012 Derek Hendrikz Consultingwww.derekhendrikz.com
Process to Objectives…
Understand Quantify Manage
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