Management of risk
According to ISO 31000 the definition of "risk" is "the effect of uncertainty on objectives". Looking into that definition it is noted that the word "risk" does refer to positive possibilities as well as negative ones. This definition was revised under the ISO 31000:2009. Before revision the definition of the word "risk" was "chance or probability of loss". Meaning that only negative results could be associated with a risk.
Management of risk involves identification, assessment, and prioritization of risks. Coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
Among strategies used to manage threats are.
- Transferring the threat to another party
- Avoid the threat
- Reducing both the negative effect and lowering the probability of the threat
- Accepting the potential negative consequences of a particular thread is the only option.
- For uncertain events with benefits (opportunities) the opposite is done.
The term Risk management is really broad and can be used by individuals, families, firms, nations and so on. Events such as natural disasters are usually very hard to forecast but usually have large impacts. Whereas events such as minor human errors happen every day and are therefor relatively easy to forecast. Human errors can have from minor to major consequences. This displays the wide range of risk management well as each possible event has to be identified, assessed and prioritized.
In this article risk management in general will be outlined with a special focus on risk management activities as applied to project management. That is one aspect inside of risk management called Project risk management
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Introduction
ISO Guide 73:2009, Risk management - Vocabulary complements ISO 31000. According to ISO 73:2009 risk management is intended to be used by those engaged in managing risks, those who are involved in activities of ISO and IEC, and developers of national or sector-specific standards, guides, procedures and codes of practice relating to the management of risk. [1]
Risks with great impacts and a high probability of happening are treated before risks with smaller impacts and lower possibility. This is called prioritization. There are several tools that can be used in the process of assessing risks. Those tools will be discussed in CHAPTER XX.
When allocating resources, risk management faces some difficulties. Short term planning would recommend skipping risk management when starting a new project as the process itself costs manpower and is not directly involved in the project itself. While long term thinking would definitely recommend going through the processes of risk management. That is because it could save a lot of money and even lives if it prevents one unfortunate event to happen as it was accounted for in the process. The effect of negative effects of risks is minimized as well as spending in ideal risk management.
Methodology
The following methods are a part of the general methodology, these methods are usually performed in the order as they are listed.
- identify and characterize threats
- assess the vulnerability of critical assets to specific threats
- determine the risk
- identify ways to reduce those risks
- prioritize risk reduction measures based on a strategy
Important principles
ISO has identified principles of risk management, some mentionable principles are.
- Create value
- Be part of decision making process
- Be a systematic and structured process
- Take human factors into account
- Be continually or periodically re-assessed
