WK1 Risk Management (Definition And Importance) PDF

RISK MANAGEMENT INTRODUCTION TO RISK MANAGEMENT AND UNDERSTAND THE IMPORTANCE OF RISK MANAGEMENT IN AN ORGANIZATION Prepared by: Dwight D. Dacquel, MBA Joseph Joekaven L. Ramizares, MBA (cand.) LEARNING OBJECTIVES:...

RISK MANAGEMENT INTRODUCTION TO RISK MANAGEMENT AND UNDERSTAND THE IMPORTANCE OF RISK MANAGEMENT IN AN ORGANIZATION Prepared by: Dwight D. Dacquel, MBA Joseph Joekaven L. Ramizares, MBA (cand.) LEARNING OBJECTIVES: At the end of this lesson, you are expected to: Define and explain what is risk and risk management Recognize the importance of studying risk management  QUESTION: "What’s a risk you’ve taken recently —maybe with academics, relationships, or finances—and how did it turn out?"  WHAT IS RISK Risk – a future event that may have an impact on the project. - It is uncertain event or condition that might affect your project if it occurs. - Risk can be an event. For instance, a fire breaks out - or a condition, like machinery parts are unavailable Probability of occurrence of that event Impact of the event occurring DEFINITION OF RISK MANAGEMENT Risk can be defined as the chance of loss or an unfavorable outcome associated with an action. - is defined in financial terms as the chance that an outcome or investment’s actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all an original investment. - A probability of threat of damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities, and it may be avoided through preemptive action.  RISK THEMES RISK TOLERANCE- is the degree of risk YOU are willing to accept RISK APPETITE- is the level of risk that your ORGANIZATION as a whole is prepared to accept while pursuing its objectives RISK THRESHOLD- is the degree of risk beyond which you would initiate execution of the risk responses  RISK ATTITUDES RISK NEUTRAL RISK AVERSE RISK SEEKER Someone who is not Someone who seeks actively seeking or Someone who does risk. If you are avoiding risks. Most of not want to take wondering why would us might fall in this any risks anyone do that, category because if whatsoever. A risk possibly because of the there is a risk we will averse person’s thrill but most likely act on it and if it turns because of the response to risk out to be an could most likely be possibilities of finding opportunity what could positive risks or be better? avoiding it. opportunities DEFINITION OF RISK MANAGEMENT Risk management is a systematic approach to identify, assess, and understand risk to guide further appropriate management decisions and actions. (Mañez et al., 2016) It helps an organization to identify, evaluate, analyze, monitor and mitigate the risk that threaten the achievement of the organization’s strategic objectives in a disciplined and systematic way. It is intentionally proactive not reactive. MANAGEMENT AND PERCEPTION Risk management is influenced by what is perceived to be risky.  Risk perception guides opinions on risk and risk management  Perception depends on past experiences, preparedness, perceived control, etc. (Mañez et al., 2016) APPROACHES TO MANAGEMENT 1. Proactive  focuses on actions taken before a disaster or risky event occurs to either prevent it or minimize its impact  It is preparatory and emphasizes planning, awareness, and mitigation.  Key Components  Risk assessment  Prevention strategies  Preparedness APPROACHES TO MANAGEMENT 1. Scenario: a company located in an area prone to earthquakes. To adopt a proactive approach: Risk assessment Prevention strategies Preparedness APPROACHES TO MANAGEMENT 2. Reactive  actions taken after a disaster or risky event to mitigate its effects, recover, and prevent similar occurrences in the future.  It is response-focused.  Key Components  Emergency response  Rehabilitation  Improvement plans APPROACHES TO MANAGEMENT 2. Reactive: After a severe flood damages a town. Key Components Emergency response (Immediate response) Rehabilitation Improvement plans (future measures) COMPARISON APPROACHES PURPOSE OF RISK MANAGEMENT “To minimize the potential harm of a risk event by implementing strategies and actions to control and reduce risk” (Mañez et al., 2016) The main objective of risk management is to increase the probability and/or impact of positive events and decrease that of negative events RISK MANAGEMENT PROCESS 1. Risk identification – identify project , product and business risks 2. Risk analysis- assess the likelihood and consequences of theses risks 3. Risk Planning- draws up plans to avoid or minimize the effect of the risk 4. Risk monitoring- monitor the risk throughout the project BENEFITS OF RISK MANAGEMENT 1. It enhances management, both in day-to-day and long-term situations. Knowing what might go wrong and how to deal with a situation lets you control the outcome. 2. It streamlines day-to-day operations. By identifying and addressing risks ahead of time, organizations can minimize disruptions, making daily operations smoother. BENEFITS OF RISK MANAGEMENT 3. It improves financial management. Losses, lawsuits, and injuries all cost money and risk management help your agency avoid these cost. 4. It helps provide consistent and enhanced services. Every time a loss occurs, or property is damaged, reports need to be written, depositions taken , and so on, activities that take time away from an employees’ ability to provide services to the public. SUMMARY OF BENEFITS AND EXAMPLES HOW TO MANAGE RISK - When assessing risks, try to stay focused on risk over which your organization has some degree of control. - A business risk is a future possibility that may prevent you from achieving a business goal. The risks facing a typical business are broad and include things that you can control such as your strategy and things that are beyond your control such as the global economy. - There is a strong relationship between risk and reward. It is generally impossible to achieve business gains without taking on at least some risks. Therefore, the purpose of risk management isn’t to eliminate risk. In most cases, risk management seeks to optimize the risk- reward ratio within the bounds of the risk tolerance of your business. THANK YOU!