Introduction to Risk Management by Derek Hendrikz

Introduction to Risk Management

derek

hendrikzwww.derekhendrikz.com

http://www.derekhendrikz.com/

Copyright © 2014

Derek Hendrikz Consulting

www.derekhendrikz.com



Risk…




…the absence of certainty in a future or current event defines the risk of such event…



…thus, standard deviation is an appropriate measure of risk…




…as the level of risk increases the expected return should increase…




Level of Risk = Level of Uncertainty


doubt creates uncertainty




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



Management… www.derekhendrikz.com



…a structured approach to managing uncertainty related to a threat…



…a sequence of human activities including risk assessment, strategies development to manage

it, and mitigation of risk using managerial resources…




…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.…




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




effective risk management results in more efficient risk-return trade-off




risk management fundamentally supports the core function of management

Copyright © 2012 Derek Hendrikz Consultingwww.derekhendrikz.com



risk sources, events&

outcomes?????





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 Information threats (outdated systems, no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…


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……



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



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.




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



Probability / Impact Ratio…

Pro

babi

lity

Impact

NoRisk

LowRisk

HighRisk

DisastrousRisk



ContingencyPlan

Mitigation

Plan

Risk / Disaster Relationship…

Pro

babi

lity

Impact

RiskManagement

DisasterManagement


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.



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


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



A Model for Risk Management:




Process to Objectives…

Understand Quantify Manage

