2. 1. Risk Concept Intro
What is risk?
What are they in real life? Think about it
3. 1. Risk Definition and Concept
Oxford Dictionary
"risk", defined by the Concise Oxford Dictionary as "hazard, chance
of bad consequences, loss etc., exposure to mischance".
Therefore Risk is defined as:
•Hazard
•Chance of bad consequence
•Loss
•Exposure to mischance
• Can cause harm or loss but some risks caused both loss and gain
(usually to different people as with extra work that a repairer
gains after a bad storm)
4. 2. Risk Definition and Concept
https://www.youtube.com/watch?v=KJ6Egnen
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Risks can be of different types
.
- Physical
- Financial
- Property
- Social/Reputation
6. 2. Risk Definition and Concept
con’td
• the factors in risk can be considered.
• Some are physical
A distinction has to be made between the risk that is
natural such as an earthquake and the effect of the
risk on man-made situation or property.
• With sufficient care and knowledge the impact of
earthquakes can be reduced by thoughtful siting
of buildings and the incorporation of earthquake-
resistant features in the design.
7. 2. Risk Definition and Concept
con’td
• Sometimes the risk is not conscious. One can
assume that the original use of polyurethane foam
in cushions (which gives many advantages), did not
consciously ignore the poisonous gas hazard from
burning furniture.
• There are additional layers of risk. The
circumstances of an individual accident or fire may
not be foreseen and sometimes may not be
foreseeable. The new risk situation arises from a
combination of circumstances. catastophe
9. 2. Risk Definition and Concept
con’td
• Some risks are human made
• This maybe knowledgeable or unwitting,
accidental or deliberate. It may have objectives
that are aimed at good results, aimed at causing
harm, or the individuals concerned maybe
indifferent to the possibility of harm. There are
many other aspects of human behaviour such as
concern or indifference that directly influence the
outcome of a risk situation.
13. 3. Risk Management
Risk management is essentially a multi-disciplinary
process where different skills and disciplines are
brought together in risk problem solving. Managing
risk implies a four-stage approach:
•Risk identification –recognize risk that threaten the
assets and earning of company
•Risk Measurement –estimate probability and
possible severity
14. 3. Risk Management
•Risk Control –measure to avoid occurrence, limit its
severity and its consequences
•Risk financing –determine likely costs and ensure
financial resources are available
Cost of risk which can be measured in terms of cost of 3
variables:
•risk control measures
•uninsured losses
•insurance
15. 4. Risk Measurement
What to measure?
1.Probability (or frequency)
2.Severity -likely severity
-possible severity
16. 4. Risk Measurement cont’d
There is a relationship between frequency and severity:
1.Small regular loss
-sufficient size of sample needed;
-we can then say: if the world does not
change this will probably happen.
To measure the future we need to know:
-size of error if no change;
-areas of possible change;
-extent of possible change.
17. 4. Risk Measurement cont’d
2.Medium irregular loss:
-what could happen?
-how often?
-what can we do about it?
3.Large very rare loss:
-what would happen?
-how much could it cost?
-how will we finance it?
18. 4. Risk Measurement: Statistics
1.Review available statistics
•Who prepared? (Gov’t v Firm)
•When?
•How were they collected?
•Has there been any change in basis?
•Is there detectable bias in presentation?
•Is there any motivation for bias?
19. 4. Risk Measurement: Statistics
2.Preparation of statistics:
•Determine what is needed;
•Review what data is available;
•Build a simple mathematic model of relationship
3.When analysing statistics:
•Take note of any evident trends;
•Try to find realistic explanation for trend
•Consider any current trends that are not yet apparent;
•Don’t brush aside any inconsistencies (let doubts nag);
20. 4. Risk Measurement: Statistics
4.In presenting statistics:
•Avoid unnecessary detail;
•Make sure conditions of presentation are clearly
stated;
•Take care to ensure decision makers understand
implications;
•If conditions have changed since statistics were
prepared, say so.
21.
22. 5. Understanding Risk Reason
Risks result in injury and loss for a number of
reasons:
1.Lack of awareness –failure to recognise either
possibility or circumstances of risk.
2. Lack of capability –may result from lack of
knowledge,competence, resources or practical
training.
3. Lack of motivation –This can vary from
indifferenceto deal with the problem.
23. 6. Practical Risk Management
• Risk management can be seen as a collection of
techniques used in a co-ordinated and flexible manner.
• It is essentially a multi-disciplinary process where
different skills and disciplines are brought together in
risk problem solving. How it is applied will depend on
many factors including:
• Individual levels of knowledge and awareness;
• Management and individual style and inclination;
• Operational capability of the firm factory, team or
individual;
• Social style and culture;
24. 6. Practical Risk Management
3-fold risk management approach
1. Formal system of risk/threat
- Identification anticipation;
- Measurement/evaluation,
- Control,
- Recording information and decisions,
- monitoring results.
25. 6. Practical Risk Management
3-fold risk management approach
2. Adopting measures for economic control that either:
- produce a measurable reduction in the overall cost of
risk (insurance plus loss Control plus self insured losses)
and/or
- help to ensure the company's survival whilst minimising
the overall cost of risk control.
3. Establishing management responsibilities for risk.
26. 3. Practical Risk Management
• The potential areas for applying risk management is very
wide. Apart from the insurable risk area it includes:
- Commercial risk: evaluating trade-off between risk and
return;
- Political risk: recognising threats in the environment and
keeping the company in balance Qatar Airways Example
- Social risk: dealing with risk problems in a social context;
- Project risk: ensuring on-time, on-budget performance;
- Computer risk: the special vulnerabilities in EDP (Electronic
Data Processing);
- Military risk;
- Personal risk: handling various threats to the individual.
27. 6. Practical Risk Management
One of the biggest problems in practical risk
management is the reluctance to recognise that risk
management performance is closely related to
organisational competence and objectives.
it is difficult to solve risk management problems in a
badly managed company and that any risk management
activity may create considerable conflict. It is not a
problem peculiar to risk management; many areas of
management produce a conflict between personal and
organisational objectives.
