1. When dealing with risk, what are the steps that must be considered?
There are three steps. These are risk assessment, risk analysis and risk management.
2. What do you mean by risk assessment?
This is concerned with identifying all of the possible risks your organisation faces. Then particular situations are looked at and the risks that may occur there are identified. Once you’ve identified the risks it becomes possible to analyse the possible effects of that risk and then put in place strategies to manage them.
3. What do you mean by risk analysis?
This is the quantification of the probable effects of the risks identified in a risk assessment exercise, which will lead to a prioritisation in terms of the management of the assessed risks.
4. What do you mean by risk management?
Having assessed and analysed your risks it is now possible to put in place strategies to manage them. Generally these strategies will fall into one of five categories. These are risk avoidance, risk reduction, risk protection, risk managing, and risk transfer.
5. Why do each of these categories mean?
Avoidance – not becoming involved in the particular situation. Reduction – taking actions to reduce the probability of certain situations happening. Protection – taking steps to limit the identified risk with a specific action. Managing – creating contingency plans to deal with both unforeseen and foreseen situations. Transfer – passing on the risk to a third party.
6. What are the different types of risk?
Long-term/short-term risk – the result of organisational activity often only becomes apparent in the long-term and so it is important to examine proposed decisions with a wide range of views. Financial risk – all business activity has financial risk and generally the level of reward will be commensurate with the degree of risk. Technical risk – any new development, or introduction of new processes, all of which have risks that may impact on sustainability. Environmental risk – here we consider the impact on the immediate physical environment and also the local environment in terms of pollution and noise, for example. Stakeholder interests – the power of various stakeholder groups is increasing and this may lead to conflicts between them having an impact on the way we go about our business.Social risk – our organisation is an integral part of society and how it reacts with society may give rise to elements of risk.Cultural risk – here we consider the relationship between an organisation and its employees, which is a source of risk when the relationship breaks down.Global risk – as a result of globalisation our business environment has become more competitive resulting in the nature and scale of certain risks being increased.