Lesson 1 Risk Management Concepts and Principles PDF

Opening Prayer Our Father in Heaven, we thank You for this wonderful day, for the good health and the blessings of a family. As we come to your presence, please forgive us our sins as we forgive those who sinned against us. We are praying for your guidance as we continue to learn new knowledge, valu...

Opening Prayer Our Father in Heaven, we thank You for this wonderful day, for the good health and the blessings of a family. As we come to your presence, please forgive us our sins as we forgive those who sinned against us. We are praying for your guidance as we continue to learn new knowledge, values and skills. Fill our hearts with joy, our lessons with fun, and our mind with new learnings. Bless the work of our hands, and our friendship with kindness, so that our day would be more productive and meaningful. Lord, we pray for your abounding grace and love be upon us. In Jesus’ name, amen.  CHAPTER I RISK MANAGEMENT CONCEPTS AND PRINCIPLES Objectives: 1. Basic knowledge of risk management. 2. Understand the elements of the risk management. 3. Know the importance of risk management plan and considering the various potential risks or events before they occur. 4. Understand the benefits of risk management framework. 5. Appreciate the principles of risk management. 6. Know the risk management process.  What is Risk Management? Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters. Risk Defined It is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is “effect of uncertainty on objectives”. Risk according to UNWTO is a situation that exposes someone or something to danger harm or loss. Risk can be a physical safety matter, a risk of property loss, a financial business risk, and more. From the moment a person engages himself in the business, whether a sole proprietorship, partnership, or corporation, the risk immediately attaches. Example: 1. Food handling is one issue that must be adequately addressed whenever someone prepares food for the customers. The danger of food poisoning due to the contamination of food is high if the necessary precaution based on standards will not be followed. The government has provided regulations that must be complied with by any business ventures to make sure that the danger or harm is mitigated. Food sanitation permit is a mandatory requirement for businesses in the food industry. Example: 2. It is an inevitable practice in both tourism and hospitality businesses to get the necessary information about their guests and clientele for security reasons, not only on the part of the guests but also on the part of the management as well. The giving and obtaining information per se is considered risk in itself that must be safeguarded accordingly What is Hazard? It defined as a potential source of harm. Substances, events, or circumstances can constitute hazards when their nature would allow them, even just theoretically, to cause damage to health, life, property, or any other interest of value. The probability of that harm being realized in a specific incident, combined with the magnitude of potential harm, make up its risk, a term often used synonymously in colloquial speech. RISK VS. HAZARD Accordingly, hazard pertains to any source of potential damage, harm or adverse health effects on something or someone, while risk is the chance or probability that a person will be harmed or experience an adverse health effect if exposed to a hazard. It may also apply to situations with property or equipment loss, or harmful effects on the environment. According to workSMARK, (n.d.) a hazard is something that can cause harm while a risk is a chance that any hazard will cause harm to somebody.  What are the Benefits of a Risk Management Framework? Enables identification of threats and opportunities for an agency. Improves and informs the planning process. Reduces likelihood of costly “surprises”. Contributes to improved resource allocation. Improves efficiency and performance. Improves accountability. Encourages continual improvement.  Seven Key Questions A good risk management framework seeks to answer these basic questions: What are we trying to achieve? What events or circumstances that could affect the achievement of our objectives? What are the consequences? How likely are these events? What can we do to manage these outcomes? How will we maximize opportunities? Can the organization recover if a risk eventuates? Principles of Risk Management There are specific core principles in regards to risk management. When looking to perform an actual risk assessment, the following target areas should be part of the overall risk management procedure (as defined by the International Standards Organization; ISO): The process should create value It should be an integral part of the organizational process It should factor into the overall decision-making process It must explicitly address uncertainty It should be systematic and structured  It should be transparent and all-inclusive It should be dynamic and adaptable to change It should be continuously monitored and improved upon as the project moves forward When first addressing a risk management procedure for a project, take note of the aforementioned principles to ensure that your specific assessment is matching up with the core ideals as defined by ISO It should be based on the best available information It should be tailored to the project It must take into account human factors  Risk Management Process There is a specific procedure that one should follow when it comes to performing a risk assessment. The overall process can be itemized as follows: 1. Identification – Perform a brainstorming session where all conceivable risks are itemized 2. Planning – Once defined, plan for contingencies as part of the overall project plan; implement controls as needed 3. Derive Safeguards – Place specific ‘fallbacks’ into the overall project plan as contingencies for risks if they arise 4. Monitor – Continuously monitor the project to determine if any defined (or un-expected) risks manifest themselves  Content of a Typical Risk Management Plan A statement of the risk management policy Details of the scope and objectives of risk management in the agency Consistent risk management language and definitions Integration with other management practices and procedures Risk assessment criteria (consequence and likelihood ratings) Description of the internal and external context in which the agency operates List of analyzed risk Summary of the risk treatment plan Outline of the risk reporting protocol Outline of the monitoring and review program  Embedding Risk Management Fit for purpose? Risk management should be embedded in all the organization’s practices and processes in a way that it is relevant, effective, and efficient. The risk management process should become part of, and not separate from, those organizational processes. In particular, risk management should be embedded into the policy development, business and strategic planning and review, and change management processes.