RISK MANAGEMENT

Risk Management 

Post 106 ⇒  by Gautam Shah ➔

A great deal is expected from every human endeavour. Entities, events or organizations are set up with expense of resources, effort and time. Planning and Operative care, are imperative for their en-action. Yet these human endeavours fail to perform for the conceived functions or the functions for which the entities were conceived may not remain relevant. In the first case the endeavour fails to perform for a set of functions. The fault may be that it was not adequately conceived or the functions were not exactly defined. In the second case the problems arise, because it is not feasible to conceive entities that can function at all times and in all conditions. Human endeavours fail to take off, perform adequately, or satisfy its stack-holders.

Risk is any set of such conditions that adversely affect an entity, event or an organization. One can avoid, manage or accommodate, risks to a limited extent, but beyond these, the effects of risks have to be compensated, replaced or transformed in such a way, that there is a sense of equilibrium. One may not be able to re-establish the lost entity, re-enact the missed event or resurrect the dead organization, but one may, indemnify against such losses.

Risks are broadly categorized as Natural or Circumstantial and Man-made or Intentional.

● Natural or Circumstantial failures originate from outside the system due to the context or changes in the environment. This could be perceived as an advantage in that such systems can be isolated with a barrier. Some interactive systems have to be participating with the environment to flourish, and so cannot be isolated. Circumstantial failures are accidental, i.e. unpredictable in scale (size) and time of occurrence. The circumstances, within which an endeavour takes place is continuously variable and unpredictable, so is perceived as a natural failure.

● Man-made failures are defined as intentional because of the Human involvement with them. These occur because the conception, observance or operations of the system are faulty. These can set right by foresight, flexibility of approach (such as adopting ‘open system or open-ended architecture’), provisions of additional capacities, and by including escape or safety procedures.

Some of the man-made failures occur, because: 1. System is not designed or adequately equipped (technically) to serve the nominally expected functions. 2. System is required to serve functions for which it is not designed and there no processes to regulate the overuse, misuse or under or nonuse. 3. System has a rigid design, structure or setup regimen which prevents corrections or improvisations. 4. System is so liberal that a coordinated emergency action plan can be enforced.

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When endeavours fail to perform then a fresh effort is required. Risk management deals with such eventualities. It determines the chances of an occurrence, de-intensify the affectations, and create means to mitigate the losses. 

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Risk management is a process of

• Identifying the risks
  

• Assessing (scale of affectation)

• Prioritizing (sequencing of risks in terms of their severity of consequences and chances of occurrence)
  

• Mitigating the risks (by way of monitoring and controlling the probability and by way of absorption and diversion of consequences).

Risk Management has been recognised as a generic standard under series ISO 31000. Risk management processes are applied to project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, and public health and safety.

‘Risk is any factor that affects an activity or object that denotes a likely negative impact from some present process or future event’. Contrary to this some believe risks often have an advantage, like a lottery that may provide unusually large gain for a very small loss. Risk if negative is valued against the scale of loss and frequency of occurrence.

Purchasing a lottery ticket is a risky investment with a high chance of no return and a small chance of a very high return. But since the amount lost is small and the gain very large, lots of people go for it. In contrast investing money in a company involves a large investment, so we take care to find out the identity of the company. A government bond though provides a small interest is considered less risky. In finance the greater the risk, higher is the potential return.

Risks in personal health are reduced by preventive actions, like avoiding illness causing situations. Secondary prevention can come by early diagnosis and perhaps preventive regimen and treatment. Third level of action is directed in terminating negative effects of an already established disease by restoring function and reducing disease-related complications.

TYPES OF RISKS

●       Determinable Risks are predictable. Certain factors trigger such risks, so observance and reportage mechanisms for such conditions can help avoid it.

●       Probable Risks are predictable but within limits of probability, but the trigger factors are not easily definable. Historical experiences show us what the scale of affectation and pattern of occurrence will be. Affectation can be spatially isolated and temporally limited, by design of the joints, connections, and by spacing and distancing. The occurrence schedules may be matched with a timed action or even planned dormancy. Additional capacities (factor of safety, safe margins), are provided for such contingencies.

●       Indeterminable Risks have very low probability, or the twin aspects such as scale of affectation and pattern of occurrence are indeterminable. The damage and suffering cannot be predicted. Its mitigation is left to the concerned age and society.

● Follow up to this article will show How Risks are managed 

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