Introduction to Risk
Management- Part I
Presented by
Khalid Sultan Anjum
M.S, L.L.B DAIBP & etc
khalidsultananjum@gmail .com
092-0312235000
…the absence of certainty in a future
or current event defines the risk of such
event…
[Link]
…thus, standard deviation is an
appropriate measure of risk…
[Link]
…as the level of risk increases the expected return
should increase…(Corporate Finance Theory)
[Link]
Level of Risk = Level of Uncertainty
doubt creates uncertainty
[Link]
when it becomes difficult to predict the outcome of
an specific event, uncertainty exist [Link]
imperfect knowledge is therefor the
origin of uncertainty [Link]
risk management is dependent on the information
that one has to evaluate the likelihood of outcomes
and one’s ability to evaluate such [Link]
Management
[Link]
Meaning of Risk Management
• Risk Management is a process that
identifies loss exposures faced by an
organization and selects the most
appropriate techniques for treating such
exposures
• A loss exposure is any situation or
circumstance in which a loss is possible,
regardless of whether a loss occurs
– E.g., a plant that may be damaged by an
earthquake, or an automobile that may be
damaged in a collision
Copyright ©2014 Pearson Education, Inc. All rights reserved. 3-12
Objectives of Risk Management
• Risk management has objectives
before and after a loss occurs
• Pre-loss objectives:
– Prepare for potential losses in the most
economical way
– Reduce anxiety
– Meet any legal obligations
Copyright ©2014 Pearson Education, Inc. All rights reserved. 3-13
…a structured approach to
managing uncertainty related to a
threat…
[Link]
*RMS:…a sequence of human activities including
risk assessment, strategies development to
manage it, and mitigation of risk using
managerial resources…
*RISK MANAGEMENT STRATEGIES m
…risk management strategies include transferring the
risk to another party, avoiding the risk, reducing the
negative effect of the risk, and accepting some or all of
the consequences of a particular risk.…
Risks can be both internal – arising from
within the organisation – and external –
arising from the context or environment of the
organisation. [Link]
risk management decreases obstacles to
achievement of corporate objectives, growth
and the maximization of shareholders wealth
[Link]
effective risk management results in more
efficient risk-return trade-off
[Link]
risk management fundamentally supports the
core function of management
[Link]
risk
sources,
events&
outcome
s
?????
[Link]
• Potential
Source
• Occurrence
Event
• Consequence
Outcome
[Link]
Natural threats (lightning, drought, floods, etc.)
Environmental threats (competitors, markets, etc.)
Business process threats (inefficient processes,
unproductive departments, etc.)
Information threats (outdated systems, no knowledge
management, etc.)
Decision threats (unqualified & unexperienced
management)
Safety hazards (slippery walkways, oil drums in wood
sheds, etc.)
[Link]
Fire;
Accident;
Explosion;
Drop in market share;
Customer refusing to buy;
Etc…
bound by specific time and place
[Link]
Damage or loss of assets;
Injury or death of people;
Financial loss;
Information loss;
Legal liability claims;
Loss of intelligence;
Loss of energy;
Failure to achieve organisational outcomes;
Etc……
[Link]
Level 1 Triggers = We are warned before the event!!!
Level 2 Triggers = We are warned during the event!!
Level 3 Triggers = We are warned after the event!
[Link]
▪ It definitely will happen.
▪ It probably won’t happen.
▪ It doesn’t matter anyway.
▪ Disaster if it happens.
[Link]
5
Definitely will happen
Event
4
Probability 3
Probably won’t happen
Disaster
2
1
Doesn’t matter
1 2 3 4 5
Impact
[Link]
Probability
Impact
[Link]
Mitigation
Plan
Probability
Contingency
Plan
Impact
[Link]
What can we do to mitigate (lessen the
harshness) the risk in terms of frequency and
severity...
Mitigation plans are mostly part of a risk
management initiative.
[Link]
What can we do to manage an unplanned
event or occurrence when it happens or how
we can deal with it once it has happened...
Contingency plans are mostly part of a
disaster management initiative.
[Link]
Mitigation
Contingency
[Link]
The Risk Management Process:
Step 1: Risk Identification
Analyse the project to identify sources of risk
New Risks
Known Risks
Step 2: Risk Assessment
Assess risk in terms of:
Severity of impact
Likelihood of occurring
Controllability
New Risks Quantified Risk
Step 3: Risk Response Development
Develop a strategy to reduce possible damage
Develop contingency plans
Managed Risk
New Risks
Step 4: Risk Response Control
Implement risk strategy
Monitor and adjust plan for new risks
Change management
[Link]
T C
To BE CONTINUED PART TWO
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