Risk Management Section 1

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1. Risk Management Process 1

MSc Maintenance Management

Module: Reliability and Availability Assessment

Lecturer: Dr Babakalli Alkali


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Risk Management Process

Risk Management Section 1


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1. Risk Management Process !

Basic terminology

"a#ardis any source o$ %otential damage& 'arm or adversee$$ects on somet'ing or someone under certain conditions at(ork.

Basically& a 'a#ard can cause 'arm or adverse e$$ects )toindividuals as 'ealt' e$$ects or to organi#ations as %ro%erty ore*ui%ment losses+.

Riskis t'e %ossibility o$ a loss or ot'er adverse event t'at 'ast'e %otential to inter$ere (it' an organi#ation,s ability to $ul$ill itsmandate.

Risk is unavoidable and %resent in virtually every 'umansituation. -t is %resent in our daily lives& %ublic and %rivate sector

organisations.


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1. Risk Management Process

Common risks and possible responses

Area of Risk Examples Response Type of response

Governance /'e governing bodymay not meet itsres%onsibilities

/raining andorientation

Directors insurance

Reduce risk t'roug'

c'anged %ractice

/rans$er risk

Strategicdirections

/'e organisation mayloose its (ay in aconstantly c'anging

environment

Strategic %lanning Reduce risk t'roug'c'anged (ork %ractice

0lients may receivean ina%%ro%riateservice causing 'arm

Pro$essional indemnityinsurance

/rans$er risk

Sta$$ may notunderstand ('at t'eyneed to do in a given

set o$ circumstances

rganisational manual Reduce risk t'roug'

c'anged (ork %ractice


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1. Risk Management Process

Common risks and possible responses (cont.)


Physical risks $$ice e*ui%ment maybe unsa$e

ccu%ational 'ealt'and sa$etycommittee and%rocesses

Avoid risk t'roug' not%roviding service

Sta$$ or clients may beinvolved in a caraccident

-nsurance /rans$er risk

Legal Legal re*uirements maynot be met

Register o$ allrelevant legislation

0om%liance %lan

Avoid risk t'roug'com%liance


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Financial risks 4inances may beinsu$$icient to meeto%erational e5%enses

4inancial %lanning Reduce risk t'roug'c'anged (ork%ractices

4raud 4inancial systems

Audit

Reduce risk t'roug'c'anged (ork%ractices

Property 4ire Provision o$ $iree5tinguis'ers6

marked e5its

-nsurance

Reduce risk t'roug'c'anged (ork%ractices

/rans$er risk

7art'*uake -nsurance /rans$er risk


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Environmental /ree damage tobuildings $rom $allen

trees or branc'es

/ree maintenance %lan Reduce risk t'roug'c'anged (ork%ractices

/ree damage duringstorm

-nsurance /rans$er risk

7art'*uake -nsurance /rans$er risk


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!at is Risk "anagement #

Risk managements'ould be central %art o$ any organisation,s

strategic management.

-t is t'e %rocess ('ereby organisations met'odically address t'erisks attac'ing to all t'eir activities(it' t'e goal o$ ac'ievingsustained bene$it (it'in eac' activity and across t'e %ort$olio o$

all activities.Risk managementis an integral com%onent o$ good

managementand decision making at all levels.

/'e $ocus o$ good risk managementis t'e identi$ication and

treatment o$ risk. -ts obective is to add ma5imum sustainablevalue to all t'e activities o$ t'e organisation.

Risk managements'ould take into account 'uman $actors.


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1. Risk Management Process ;

!at is Risk "anagement # (cont.)

Risk managements'ould be a continuous and develo%ing

%rocess ('ic' runs t'roug'out t'e organisation,s strategyandt'e im%lementation o$ t'at strategy.

-t s'ould address met'odically all t'e riskssurrounding t'eorganisation,s activities %ast& %resent and in %articular& $uture.

-t must be integrated into t'e culture o$ t'e organisation(it' ane$$ective %olicy and a %rogramme led by t'e most seniormanagement.

-t must translate t'e strategy into tactical and o%erational

obectives& assigning res%onsibility to managers and em%loyeetomanage risk as %art o$ t'eir ob descri%tion.

Risk managements'ould be trans%arent and inclusive.


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1. Risk Management Process 1'en eit'er source or %roblem is kno(n& t'e events t'at can lead to a %roblemcan be investigated. 4or e5am%le: stake'olders (it'dra(ing during a %roect mayendanger $unding o$ t'e %roect6 lig'tning striking a Boeing 88 during takeo$$may make all %eo%le onboard immediate casualties.


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Risk "anagement Process (cont.)

. %dentifying risks in yo&r organisations (cont.)

/'e aim is to develo% a com%re'ensive list o$ t'e sources o$ risks andt'eir conse*uences. /'ere is no one rig't (ay to do t'is. Somestrategies are:

= brainstorming at a sta$$ meeting.

= brainstorming (it' stake'olders (it' kno(ledge and e5%erience.= systematic analysis& e.g. $lo( c'arting systems and %rocesses.

= develo%ment o$ ?('at i$? scenarios.

= researc'ing relevant data& suc' as inury rates& insurance claims&

deat' rates& etc.

Risk %dentification and eval&ation met!ods detailed in ection and *


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Risk "anagement Process (cont.)*. Analysing risks in yo&r organisations

Some o$ t'e key *uestions in analysing t'e risks are:= >'at is t'e likeli'ood o$ t'e risk@= >'at is t'e conse*uence@= >'at is t'e level o$ risk )combination o$ likeli'ood conse*uence+@= >'at $actors a$$ect t'e likeli'ood or conse*uences@= >'at is t'e level o$ uncertainty@

= >'at are t'e limitations to t'e analysis@

uestions can also be asked in relation to o%%ortunities )ie risks (it' %ositive

conse*uences+:

= >'at is t'e likeli'ood o$ t'e o%%ortunity@= >'at is t'e conse*uence@= >'at is t'e level o$ o%%ortunityCrisk )combination o$ likeli'ood and

conse*uence+@



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Risk "anagement Process (cont.)

+. Eval&ating risks in yo&r organisations

Risks must be assessed as to t'eir %otential severity o$ lossand to t'e

%robability o$ occurrence. /'is can be sim%le to measure& $or e5am%le t'e

value o$ a lost building& or im%ossible to kno( $or sure like in t'e case o$ an

unlikely event occurring )e.g. B'o%al+./'ere$ore& in t'e assessment %rocess it

is critical to make t'e best educated guesses %ossible in order to %ro%erly

%rioriti#e t'e im%lementation o$ t'e risk management %lan.

/'e $undamental di$$iculty in risk assessmentis determining t'e rate o$

occurrencesince statistical in$ormation is not available on all kinds o$ %ast

incidents. 4urt'ermore& evaluating t'e severity o$ t'e conse*uences )im%act+ is

o$ten *uite di$$icult$or immaterial assets. evert'eless& risk assessment s'ould

%roduce suc' in$ormation $or t'e management o$ t'e organi#ation t'at t'e

%rimary risks are easy to understand and t'at t'e risk management decisions

may be %rioriti#ed.


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Risk "anagement Process (cont.)+. Eval&ating risks in yo&r organisations (cont.)

umerous di$$erent risk $ormulae e5ist& but %er'a%s t'e most (idely acce%ted$ormula $or risk *uanti$ication is:

Rate o$ occurrence multi%lied by t'e im%act o$ t'e event e*uals risk

Risk E Rate o$ occurrence F im%act o$ t'e event

T!is simple comp&tation enables a ro&g! and ready comparison of risks.

Some o$ t'e key *uestions in risk evaluation are:

= >'at are acce%table levels o$ risk@

= >'at are intolerable levels o$ risk@

= Does t'e risk need treatment@

= >'at are t'e %riorities $or treatment o$ risks@



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1. Risk Management Process 1;

Risk "anagement Process (cont.),. Treating risks in yo&r organisations

nce risks 'ave been identi$ied and assessed& t'ey 'ave be managed.Strategies to manage risks$all into one or more o$ t'e $our maor categories:

= Avoidance )eliminate+

= Reduction )mitigate+

= /rans$erence )outsource or insure+

= Retention )acce%t and budget+

Risk Avoidance:

-ncludes not %er$orming an activity t'at could carry risk. An e5am%le (ould be

not buying a %ro%erty or business in order to not take on t'e liability t'at

comes (it' it.


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1. Risk Management Process 2'en a risk assessment 'as identi$ied a 'a#ard as 'avingunacce%table risks(e 'ave to %ut in %lace control measures toeliminate t'e risk or reduce t'e risk to an acce%table level. /'is is amust i$ t'e risk is to be retained.

"a#ards can arise $rom:

= t'e (ork%lace environment

= t'e use o$ %lant and e*ui%ment

= %oor (ork design or %ractices

= ina%%ro%riate management systems and %rocedures

= 'uman be'aviour

Risk 0ontrolis t'e measures (e take to eliminate or reduce t'e risk toan acce%table level. /'ere is a "ierarc'y o$ control('ic' s'ould be$ollo(ed ('en c'oosing met'ods $or controlling a %articular risk.


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1. Risk Management Process 2;

3ierarc!y of Control

>'en selecting a%%ro%riate measures to control a risk a control

measure s'ould be selected $rom as 'ig' on t'e 'ierarc'y o$ controllist

as %racticable. /'e "ierarc'y o$ 0ontrol list usually com%rises:

1. 7limination

2. Substitution

!. -solation. 7ngineering 0ontrols

. Administrative 0ontrols

3. Personal Protective 7*ui%ment

/'e list may be customised $or eac' industry or a%%lication& 'o(ever

t'e basic order o$ %riorities s'o(n above s'ould not be c'anged.


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1. Risk Management Process !

Documents

Risk Management Section 1