UC-6 Identify and Apply Risk Management Processes
Risk management is a systematic process for identifying, analyzing, and responding to risks that
could affect an organization's objectives.
By proactively managing these risks, organizations can minimize negative outcomes and
maximize opportunities.
LO 1. Identify risks
The first step is to identify all potential risks that could impact the organization. Risks can
be internal or external, and they can be positive (opportunities) or negative (threats).
1.1. Identify the context for risk management
Context for risk management refers to the internal and external environment in which an
organization operates.
Internal Context
This includes factors within the organization that influence its risk profile.
Organizational Objectives:
Organizational Culture:
Structure and Governance:
Resources and Capabilities:
External Context
This involves factors outside the organization that are beyond its direct control.
Political and Legal Environment:
Economic Conditions:
Social and Cultural Environment:
Technological Environment:
Stakeholder Expectations:
1.2. Identify risks using tools, ensuring all reasonable steps have been taken to identify all risks
Risk Identification Tools and Techniques
Brainstorming and Workshops
Checklists and Historical Data
Interviews and Surveys
SWOT Analysis
Root Cause Analysis
1.3. Document identified risks in accordance with relevant policies, procedures and
legislation
"Document identified risks" means to formally record and describe the potential risks an
organization faces.
LO 2. Analyze and evaluate risks
Risk Analysis: Understanding the Risk
Risk analysis is the process of developing a detailed understanding of each identified risk.
Risk Evaluation: Deciding What to Do
Risk evaluation is the process of comparing the results of the risk analysis against the
organization's risk criteria.
2.1. Analyse and document risks in consultation with relevant stakeholders
Analysis of Risks
It's a two-part process:
Likelihood Assessment: This step determines the probability of a risk event occurring. It
can be qualitative (e.g., high, medium, low) or quantitative (e.g., a specific percentage).
Stakeholders are crucial here as they can provide expert judgment based on their
experience and knowledge of past events, system vulnerabilities, or market conditions.
Impact Assessment: This evaluates the potential consequences if the risk materializes.
The impact can be measured in various terms, such as financial loss, reputational damage,
operational disruption, or legal penalties. Again, stakeholders are key to defining these
impacts accurately, as a risk that may seem minor to one department could be
catastrophic to another.
Documentation of Risks
Documenting risks is the formal process of recording the findings from the analysis phase in a
structured format, such as a risk register.
2.2. Undertake risk categorisation and determine level of risk
Risk Categorization
Risk categorization involves organizing potential threats into groups based on their nature
or origin. Common risk categories include:
Operational Risk: Pertains to the risks associated with an organization's internal
processes, people, and systems
Financial Risk: Involves potential monetary losses. This can be broken down further
into things like credit risk (a borrower defaulting on a loan), market risk (volatility in
financial markets affecting asset values), and liquidity risk (inability to meet short-term
financial obligations).
Strategic Risk: Affects an organization's long-term goals and objectives. Due to poor
financial planning, changes in market dynamics, competitive pressures, or shifts in
customer preferences.
Compliance Risk: Stems from the failure to comply with laws, regulations, and internal
policies.
Reputational Risk: The potential for damage to an organization's reputation and brand
image, which can lead to a loss of customer trust and business.
Determining the Level of Risk
The process of evaluating a potential threat or hazard to understand its significance. It is a
fundamental part of risk management and assessment. The core idea is to move beyond
simply identifying a risk and to quantify or categorize how much of a threat it actually poses.
To determine the level of risk, a risk assessment matrix is commonly used.
Assess Likelihood: Evaluate how probable it is that a specific risk event will happen.
Assess Impact/Severity: Determine the consequences if the risk event occurs.
Calculate Risk Level: The level of risk is calculated by combining the likelihood and impact.
This is often done by multiplying the scores assigned to each factor. The resulting score places
the risk into a category, typically low, medium, or high, which is then used to prioritize
mitigation efforts.
2.3. Document the analysis processes and outcomes
Analysis Processes
Documenting the process involves detailing the steps you took from start to finish. This section
should be thorough enough that another person could replicate your analysis. Key elements to
document include:
Objective/Research Question: Clearly state the purpose of the analysis. What specific
question were you trying to answer? What problem were you trying to solve?
Data Sources: List all the data used, including where it came from (e.g., a database, an
external report, a survey) and the date it was collected.
Methodology: Describe the analytical methods and techniques you used. This could be
anything from a simple document review to complex statistical modeling. Specify any
software or tools used, such as R, Python, or Excel.
Data Preparation: Detail the steps taken to clean and prepare the data. This includes
handling missing values, standardizing formats, and any transformations applied.
Assumptions and Limitations: Acknowledge any assumptions made during the analysis
and the limitations of the data or methods. This adds credibility to your findings by
showing you've considered potential biases.
Analysis Outcomes
Documenting the outcomes involves presenting your findings in a clear, concise, and
understandable manner.
Key elements to document include:
Key Findings: Summarize the most important results of your analysis. Use visuals like
charts, graphs, or tables to illustrate these findings.
Interpretation: Explain what the findings mean in the context of your research question.
Go beyond just stating the results; provide a deeper interpretation of the data.
Conclusions: Based on your findings and interpretation, state your final conclusions.
These should be a direct answer to your original research question.
Recommendations: If the analysis was done to solve a problem, provide actionable
recommendations based on your conclusions.
Next Steps: Suggest future research or analysis that could build upon your current work.
LO 3. Treat risks
Treating risks refers to the process of developing and implementing a plan of action to respond to
identified and analyzed risks. It is the stage where an organization decides what to do about the
risks that have been evaluated.
After risks have been identified, analysed, and prioritized based on their likelihood and potential
impact, the organization must choose a strategy to address them. The goal of risk treatment is to
modify the risk to an acceptable level, align it with the organization's risk appetite, and ensure
the risk doesn't negatively impact business objectives.
3.1. Determine appropriate control measures for risks and assess for strengths and
weaknesses
Determining appropriate control measures and assessing their strengths and weaknesses is the
core action of risk mitigation. It's the practical step where an organization decides how to
actively reduce a risk's likelihood or impact.
Determining Appropriate Control Measures
Identifying and selecting the most effective actions to reduce or eliminate a specific risk. The
goal is to choose a control that will either lower the likelihood of the risk occurring or minimize
the impact if it does.
Assessing Strengths and Weaknesses
Means evaluating/examining a proposed control measure to determine how well it will mitigate a
risk and what its positive and negative aspects.
3.2. Identify control measures for all risks
Identify Control Measures for All Risks
It is the process of generating a comprehensive list of all possible actions that could be taken to manage
a specific risk.
This step is about brainstorming and documenting every conceivable control, without
immediately judging its feasibility or effectiveness.
Key Aspects
Brainstorming Phase: This is not a decision-making stage. The primary objective is to
create a list of potential controls.
Comprehensive Listing: You should aim to identify controls from all levels of the
Hierarchy of Controls:
Elimination: Removing the risk entirely.
Substitution: Replacing the risk with a safer alternative.
Engineering Controls: Physically isolating the risk.
Administrative Controls: Changing work procedures or rules.
Personal Protective Equipment (PPE): Providing gear to protect individuals.
No Judgment: - During this phase, you should not evaluate the controls' cost,
practicality, or effectiveness. The focus is solely on identifying all possibilities.
3.3. Refer risks relevant to whole of organisation or having an impact beyond own work
responsibilities and area of operation to others as per established policies and procedures
Means to identify, acknowledge, and articulate a risk that have a broad and significant impact on
the entire company, not just a single department, project, or process.
3.4. Choose and implement control measures for own area of operation and/or
responsibilities
3.5. Prepare and implement treatment plans
LO 4. Monitor and review effectiveness of risk treatment/s
The process of continuously and systematically checking whether the actions taken to manage a
risk are actually working as intended.
4.1. Regularly review implemented treatment/s against measures of success
Consistently evaluate whether a chosen course of action (the "treatment") is working by
comparing its results to a set of pre-defined goals or benchmarks (the "measures of success").
This isn't a one-time check but an on-going process.
This continuous review process is vital because it allows for:
Adjustment and Improvement: No plan is perfect from the start. Regularly checking progress
helps you identify what's working and what's not. If the treatment isn't yielding the desired
results, you can adjust or even abandon it to try a more effective approach.
Optimal Resource Allocation: This practice ensures that resources (time, money, effort) aren't
wasted on ineffective solutions. By focusing on treatments that are clearly successful, you can
allocate resources more efficiently.
Accountability and Transparency: Having clear measures of success and regularly reporting
on them provides accountability to stakeholders, whether they are clients, patients, or
management. It demonstrates that the process is being managed thoughtfully and based on
evidence.
4.2. Use review results to improve the treatment of risks
Review Results:
Refers to the outcome of evaluating the effectiveness of a risk treatment. It involves looking at
what happened after a specific action was taken to address a risk.
Treatment of Risks:
A specific action or set of actions taken to manage a risk. The goal is to modify the risk to a level
that is acceptable. Common risk treatments include:
Avoidance: Eliminating the risk entirely by not undertaking the activity.
Mitigation: Reducing the likelihood or impact of the risk (e.g., implementing security protocols
to prevent a data breach).
Transfer: Shifting the risk to another party (e.g., through insurance).
Acceptance: Consciously deciding to take no action and bear the consequences.
4.3. Provide assistance to auditing risk in own area of operation
It means proactively and regularly assessing the risks with in your own sphere of influence.
Audit:- A formal, independent examination of record, processes, or activities to evaluate their
effectiveness and compliance with established policies, procedures and regulations.
4.4. Monitor and review management of risk in own area of operation
Risk Management:- is the process of identifying, assessing and addressing a financial, legal,
strategic and security risks to an organization.
Monitor management of risk:- Monitoring is the continuous, systematic observation and
tracking of risks and the controls put in place to manage them.
Review management of risk:- Reviewing is a more formal, periodic evaluation of the entire
risk management frameworks.