Week 1 Risk Management Chapter Discussion Question

Question

The first 3 chapters in our text provide an overview of approaches to defining risk, the impact of risk on organizations, and different types of risk.  Select one topic from each chapter that is most interesting to you or perhaps offers a new insight that you may not have considered before. Briefly describe each of the 3 selections and share your reason for choosing them and your initial impression of their importance in risk management.

Risk management is the identification, evaluation, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events[1] or to maximize the realization of opportunities.

Risks can come from various sources including uncertainty in international markets, threats from project failures (at any phase in design, development, production, or sustaining of life-cycles), legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. There are two types of events i.e. negative events can be classified as risks while positive events are classified as opportunities. Risk management standards have been developed by various institutions, including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies, and ISO standards.[2][3][4] Methods, definitions and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety.

Strategies to manage threats (uncertainties with negative consequences) typically include avoiding the threat, reducing the negative effect or probability of the threat, transferring all or part of the threat to another party, and even retaining some or all of the potential or actual consequences of a particular threat. The opposite of these strategies can be used to respond to opportunities (uncertain future states with benefits).

Certain risk management standards have been criticized for having no measurable improvement on risk, whereas the confidence in estimates and decisions seems to increase.

Approaches to defining risk Definitions of risk The Oxford English Dictionary definition of risk is as follows: ‘a chance or possibility of danger, loss, injury or other adverse consequences’, and the definition of at risk is ‘exposed to danger’. In this context, risk is used to signify negative consequences. However, taking a risk can also result in a positive outcome. A third possibility is that risk is related to uncertainty of outcome. Take the example of owning a motor car. For most people, owning a car is an opportunity to become more mobile and gain the related benefits. However, there are uncertainties in owning a car that are related to maintenance and repair costs. Finally, motor cars can be involved in accidents, so there are obvious negative outcomes that can occur. It is also important to remember the legal obligations associated with car ownership and the rules that must be obeyed when the car is being driven on a road. Definitions of risk can be found from many sources, and some key definitions are set out in Table 1.1. An alternative definition is also provided to illustrate the broad nature of risks that can affect organizations. The Institute of Risk Management (IRM) defines risk as the combination of the probability of an event and its consequence.