Process of Risk Management (Research Paper Sample)

Risk Management “Insurance”
Introduction
Risk management refers to the process of assessing, identifying, arranging the risks in order of their priority and mitigating them (Dorfman 2007). “After identifying and assessing risks economic resources are mobilized to minimize, monitor and control the probability and/ or impact of unfortunate events” (Hubbard 2009, p 46). The process is also useful in maximizing the benefits from the available opportunities. Some sources of risks are: projects failures; a project may fail at any level, risk from credit liabilities, accidents, uncertainty in financial markets, and other natural calamities. To avoid or minimize risks there have been development of various standards in risk management. According to ISO/DIS 31000 (2009), some of these standards are: Project Management Institute, Actuarial societies, ISO standards and National Institute of Science and Technology. Each of the standards has its own methods, goals and definitions based on the context of the risk; whether it is a project management, industrial processes, public health or any other context.
It is hard to eliminate risks once and for all; there are strategies derived to manage risks and they include: transfer of risk from one party to another; there are some organizations that accept risks from others such organizations are the insurance agents which take risks of other organizations or individuals (Dorfman 2007). The second strategy is risk avoidance; in this case the person or the organization opts to choose the method or project that has no risks and foregoes the one with risks. There is also another strategy where the risk is unavoidable but there are means to minimize its negative effects, in such a situation the organization or the person involved will respond by reducing the negative consequences of the risk or on reducing the probability of the risk to occur. In some extreme cases risks is unavoidable and one is forced to accept it, the consequences of the risk are born by the involved person or organization.
Prioritizing Risks
In the process of prioritization risks are classified according to their impact and probability of occurrence. The risks with greater negative impacts and have high chances of occurring are placed first in the priority list and are the first ones to be handled. Other risks with less severe impacts and have less chance of occurrence are handled later according to their urgency. This process is not always easy as it involves different types of risks and therefore assessing which risk has more intense negative impacts than the other is hard. The resources available to mitigate the risks are limited and sharing them among the risks is also hard. Some risks are intangible and the process of identifying them and quantifying their probable negative impacts is hard.
Principles of Risk Management
From the International Organization for Standardization (ISO) the following principles in risk management are identified.
Risk management should create value; the benefits acquired from the risk or the amount of loss prevented to occur from investing in the risk management should exceed the cost of risk mitigation. It should also be an integral part of the organization processes and in decision making. It should also be structured in a systematic manner and include all the assumptions and uncertainties encountered.
It should include human factors, make use of the best information provided and enhance transparency. It should also be regularly re-assessed for improvement or any other enhancements.
Process of Risk Management
The standard ISO 31000 gives the following steps in risk management.
Identification
The first step is to identify the risk that should be addressed. The context of the risk is determined in this stage. In this stage the potential risks are highlighted through either the source analysis or the problem analysis. There are different methods used in risk identification some of them are: objective based risk identification; the set objectives of the organization acts as the basis for this method and any event that may block this objectives is termed as a risk.
Assessment
This is the second step that takes place once a risk has been identified. The risks are assessed according to how their negative results are severe and to their chances of occurring. In this process there is a challenge to the probability of occurrence and the impacts that may result since it is based on estimates.
Risk mitigation
There are several risks options that may be taken to cub the risk. Some of these measures include: building an adequate control and taking thorough measures in risk avoidance in the business, transferring o...