3. Risk Assessment and the Risk Management Process
Risk management is a general topic that looks at how all risks are managed across the organization.
The number and type of risks an organization face in today’s world are many and varied.
As an example, organizations face risks to the value of their own organization through the stock market fluctuations and shareholder lawsuits for mismanagement. These are just two risks organizations face with regard to the value of the organization. The value of the organization impacts its ability to raise additional capital, the interest rates it gets on loans, and the rating of any bonds the organization will issue or has issued. This is just one type of risk management focused on financial risks. There
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All the risks identified will bias the controls to be setup and will all also be addressed in business’s continuity and disaster recovery plans.
At this point let us consider the following definitions, to create a common ground:
• Risks: a Threat that exploits a Vulnerability of an Asset
• Threats: any natural or man-made circumstance that is a potential cause of an unwanted incident which may result in harm to a system or an organisation
• Vulnerabilities: an absence or a weakness of a safeguard or control of an asset or a group of assets which may be exploited by a threat
• Probability of a Risk to occur (self explanatory)
• Impacts: impact over organizational assets
• Asset Value: specific value associated to an asset (this is a very difficult if not impossible task)
• Cost to protect an asset: very important info to management, assessed in next paragraph
• Asset’s replacement cost: very important info to management, assessed in next paragraph
3.1. Threat, Vulnerability and Impact
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If the organization spends 20,000£ on various systems to keep an asset up and running, that is 20,000£ the organization cannot spend on something else, such as marketing materials, advertising, employee wages or in new, more effective and resilient systems. In addition, there is the cost of the downtime versus the cost of the solution. What does one hour of downtime of that asset cost to the organization? That is the opportunity cost of downtime. It is important to understand that for every activity that occurs, some other activity cannot occur, and management will be always analysing
... middle of paper ... ... Threats facing Mooney Aviation Company Among the threats that this company is facing include air pollution, terrorism, and the Islamic revolution. Increase in oil and furl, reduction in the number of travelers moving from one part of the globe to the other and voices of labor unions who fight for the rights of workers.
"The next step is to determine the impact that the threat could have on the organization. It is important for auditors to understand that not all threats will have the same impact. This is because each system in the organization most likely will have a different value (i.e., not all systems in the organization are worth the same or regarded in the same way). For instance, to evaluate the value of a system, auditors should identify the processes performed by the system, the system's importance to the company, and the value or sensitivity of the data in the system" (Edmead). To understand the important of a risk helps point out the businesses weaknesses. It is important that the degree of impact caused by different risks are determined. The
External risks are exposures that result from environmental conditions that the business commonly cannot influence, such as the regulatory environment and market
Tucker, G. (Director) (2014, January 6). Risk Management Powerpoint Week 1 Chapter 1 and 2. Risk Management - EMGT-4215. Lecture conducted from National Labor College, Silver Spring, MD.
Internal Risk Assessment Risks Description Management Conflicting interest Conflicting interest of the management Sub-optimization Lack of goal congruence Force majeure (ex. fire, robbery, etc.) Acts done by the employees of the company Loss of competitive advantage Tampered reputation Financial mismanagement Internal control breach Operations Employee mutiny Different interests between the management and the employees that can lead to boycott of their work G. Issues and Challenges Arising from Internal Analyses The analysis of the company's internal environment is based on the strength, weaknesses, and and the risks tied to it.
These factors are typically associated with uncontrollable external factors that affect the company. It is easy to accidently include weaknesses of a company as a threat, however, if they are internal factors they will only be included in the weaknesses section of the SWOT analysis (Parnell, 2014). Opportunities and threats can be determined by conducting a PEST analysis. A PEST analysis is the analysis of the political, economic, social, and technological forces that affect the activities and performance of a company in the environment in which it exists (Jurevicius, 2013a). Other things that may be considered opportunities or threats are future business trends, changes in the culture of the firm, the economy, demographics, changes associated with the physical environment where the company is located, and governmental
Risk is characterized as an occasion that has a probability of happening, and could have either a positive or negative effect to a project ought to that risk occur. A risk may have at least one causes and, on the off chance that it happens, at least one effects. For example,
Example of Unsystematic Risk that may be particular to individual organizations or commercial ventures are business risk, financing risk, credit risk, item risk, lawful risk, liquidity risk, political risk, operational risk, and so forth. Unsystematic risks are viewed as manageable by the organization or
The objectives of operation, reporting, and compliance are represented in the column. Components are represented by the rows regarding the ERM. The third dimension is the entity’s organizational structure. It demonstrates clear how and how counteract low risk tolerance and high risk appetite. Risk reduction is obtained by facilitating effective internal control with a broad scope that reflects changes in the framework to risk management with ERM. The framework requires adaptability which enables flexibility due to a overlap of functions of identify, assessing, and responding to risks within operations, reporting, and compliance. Activities, information, communication should be monitored, evaluated, and identified for response are part of the ERM for effective and efficient risk management. The concept of risk appetite and risk tolerance is introduced because the identification of potential events affecting achievement can be managed. Also, the process requires communication, consultation before and monitoring and review after every decision or action (McNally, 2015). The financial principles to risk management are effective risk management creates value, integration, decision making, address uncertainty, systematic structure, and facilitated continuous improvement. The financial principles form effective and efficient management within a firm. Financial principles help ERM with risk
Risk is “a situation involving exposure to danger” (Oxford English Dictionary, 2017). Managing risk is vital in social work to prevent the situation from deteriorating. However, it is not always possible to prevent risks. People are faced with risk decision-making in their personal and professional lives. Professional decisions about risk require a good amount of skills and knowledge that can be learnt and improved.
Identify the potential risks which affect the company and manage these risks within its risk appetite;
Operational risks are risks that may occur in the day to day activities, which may involve the process, systems, or people. Strategic risks are those risks involved with strategy. Positioning ones’ company with the right alliances and competing with fare prices will help affect future operational decisions. Compliance risks involve the many legislations and regulations a company must follow. The results could lead to high penalties and a company’s reputation could take a hit. Lastly, financial risks are always being monitored because oil, fuel, and currency rates are constantly fluctuating. By monitoring the fluctuating rates determines fare cost and balancing of the budget. “Like in any other industry, the risk exposure quantifies the amount of loss that might occur from any particular activity” (Genovese,
e risk management process typically includes five steps. These steps are 1) identifying all significant risks, 2) evaluating the potential frequency and severity of losses, 3)developing and selecting methods chosen, 5) monitoring the performance and suitability of the risk management methods and strategies on an ongoing basis.
Risk Management allows us to identify the problems which are unknown during the start of the project but may occurs later. Implementing an efficient risk management plan will ensure the better outcome of the project in terms of cost and time.