MSG Team's other articles

8932 Different Folks, Different Strokes! The Many Leadership Styles in the Real World

Leadership in the real world is quite different from what is taught in business schools and colleges. For instance, many leaders often confront the problems of scarcities and other constraints which are situational and unique to the geographical location in which they operate. The example of the multinational CEOs (Chief Executive Officers) who have contend […]

11444 Success Factors in Team Building

Success Factors for Teams There are many factors that ensure a team’s success or failure. Among them, the three most important factors are: The nature of the leadership of the team along with a shared vision and sense of purpose The collaborative nature of the team; and The way in which the team members are […]

8943 Difficulties in Ethical Decision Making

Decision making involves a great degree of value clarity, ethical decision making involves more! Unlike certain financial, inventory and production decisions, ethical decisions cannot be coded into digital machines. They require critical thinking and evaluation. What makes ethical decision making so difficult ? Why cannot ethical decisions be programmed like other decisions ? What leads […]

12154 Personal Grooming Tips for Women

Personal grooming refers to an art which helps individuals to clean and maintain their body parts. Human beings need to wash, clean their body parts to look good and for personal hygiene as well. Personal grooming helps in enhancing an individual’s self esteem and also goes a long way in developing an attractive personality. Personal […]

9286 Factors Influencing Retention Ratio In Reinsurance

In the previous article, we have already studied what retention is and why it is important for many insurances as well as reinsurance companies. We are now also aware of the fact that some insurance companies tend to retain more risks on their balance sheet whereas there are others who pass on more risks from […]

Search with tags

  • No tags available.

Literally speaking, risk management is the process of minimizing or mitigating the risk. It starts with the identification and evaluation of risk followed by optimal use of resources to monitor and minimize the same.

Risk generally results from uncertainty. In organizations this risk can come from uncertainty in the market place (demand, supply and Stock market), failure of projects, accidents, natural disasters etc. There are different tools to deal with the same depending upon the kind of risk.

Ideally in risk management, a risk prioritization process is followed in which those risks that pose the threat of great loss and have great probability of occurrence are dealt with first. Refer to table below:


IMPACTACTIONS
SIGNIFICANTConsiderable Management RequiredMust Manage and Monitor RisksExtensive Management essential
MODERATERisk are bearable to certain extentManagement effort worthwhileManagement effort required
MINORAccept RisksAccept but monitor RisksManage and Monitor Risks
 LOWMEDIUMHIGH
LIKELIHOOD

The above chart can be used to strategize in various situations. The two factors that govern the action required are the probability of occurrence and the impact of the risk.

For example a condition where the impact is minor and the probability of occurrence is low, it is better to accept the risk without any interventions.

A condition where the likelihood is high and the impact is significant, extensive management is required. This is how a certain priority can be established in dealing with the risk.

Apart from this, typically most of the organizations follow a risk management cycle. Refer diagram below:

Risk Management

According to this cycle there are four steps in the process of risk management.

The first step is the assessment of risk, followed by evaluation and management of the same. The last step is measuring the impact.

Risk identification can start at the base or the surface level, in the former case the source of problems is identified. We now have two things to deal with the source and the problem.

Risk Source: The source can be either internal or external to the system. External sources are beyond control whereas internal sources can be controlled to a certain extent. For example, the amount of rainfall, weather over an airport etc!

Problem: A problem at the surface level could be the threat of accident and casualty at the plant, a fire incident etc.

When any or both of the above two are known beforehand, certain steps can be taken to deal with the same.

After the risk/s has been identified then it/they must be assessed on the potential of criticality. Here we arrive upon risk prioritization.

In generic terms ‘Likelihood of Occurrence × Impact’ = Risk.

This is followed by development of a risk management plan and implementation of the same. It comprises of the effective security controls and control mechanisms for mitigation of risk.

A more challenging risk to organizational effectiveness is the risk that is present but cannot be identified. For example a perpetual inefficiency in the production process accumulates over a certain period of time and translates into operational risk.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

The COSO Framework for Internal Control

MSG Team

The Cost Structure in the Insurance Industry

MSG Team

Credit Derivatives: An Introduction

MSG Team