Conducting Risk Assessment

To be successful, any risk assessment has to concentrate on the local identifiable issues relating to the business. Before exploring other concerns, concentrate on the most realistic risks and threats that currently exist in the business environment. This can include factors such as:

1) The Nature of the Business.

Risk Management

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2) Surrounding Area of Facility.

Conducting Risk Assessment

3) The Construction of the Facility.

4) Common Weather Patterns.

5) Technology Dependencies.

OBJECTIVES OF THE RISK ASSESSMENT

During the Risk Assessment, risks to the business will be identified and evaluated. The vulnerability of the business to these risks will be rated. You will also:
1) Identify what prevention practices are being used.
2) Define and implement safeguards to mitigate risks.
3) Conclude the overall risk to the business.
4) Build a case for strategy selections.

Once the assessment is completed, a business can make decisions regarding methods of mitigating risks. By completing a Risk Assessment and Business Impact Analysis, a business can implement the best strategies for Contingency Planning.

RISK ASSESSMENT PROCESS

Despite the prevention practices utilized, potential hazards that are existent and could result in a loss to the business need to be considered. Even though the exact nature of these exposures and their consequences are tough to determine, it is valuable to conduct a risk assessment of all threats that can logically happen.

WHAT SHOULD BE INCLUDED?

All locations and facilities should be included in the risk assessment. Surrounding businesses, local fire, police, and community utilities should also be included in the assessment. Any vendor provided service that is provided to the business should also be evaluated.

STEPS TO FOLLOW

The following steps are necessary for completing a Risk Assessment.

1) Identify Threats/ Risk and Vulnerabilities.

2) Analyze risks and determine vulnerability.

3) Identify mitigation and recovery options.

4) Evaluate and Choose Options.

There are additional steps that need to take place during this process. Some of those actions are:
1) Review Internal Plans and Policies.

2) Meet with Outside Groups.

3) Identify Assets.

4) Conduct an Insurance Review.

ASSESSING YOUR RISK

The process of identifying risks/threats, probability of occurrence, the vulnerability to each risk/threat and the potential impact that could be caused, is necessary to prepare preventative measures and create recovery strategies. Risk identification also provides a number of other advantages including:

1) Exposes previously overlooked vulnerabilities that need to be addressed by plans and procedures.

2) Identifies where preventative measures are lacking or need reevaluated.

3) Can point out the importance of contingency planning to get staff and management on board.

4) Will assist in documenting interdependencies between departments and increase communication between internal groups. Can also point out single points of failures between critical departments.

For the ease of this process, categories of risk should be created to focus the thought process. In the Risk Assessment Survey, the main categories include, Natural Risks, Man-Made (Human) Risks, and Environmental Risks. These are certainly not requirements, and should not be considered to be constraining.

The nature of a risk/threat should be determined, regardless of the type. Factors to consider should include (but not limited to):

1) Geographic Location.

2) Weather Patterns for the Area and Surrounding Areas.

3) Internal Hazards (HVAC, Facility Security, Access, etc).

4) Proximity to Local Response/Support Units.

5) External Hazards (neighboring Highways, Plants, etc).

Potential exposures may be classified as:

1) Natural Threats.

2) Man-made (human) Threats.

3) Environmental Threats.

Other steps in conducting Risk Assessment are to review following points:

1) Probability of Occurrence.

2) Vulnerability to Risk.

3) Potential Impact.

4) Preventative Measures in Place.

5) Insurance Coverage.

6) Past Experiences.

ANALYZING THE RESULTS

Once the Risk Assessment Survey and face to face interviews have been conducted, the next step is to analyze and present the results so that Executive Management can get most use of the data. Analysis can be a time-consuming and tedious process, especially with an enormous amount of data, but it is critical to the RA process.

The analysis will be the foundation for planning recommendations to senior management. The recovery strategies that need to be developed should be based on the findings of the Risk Assessment Survey and interviews, as well as the Business Impact Analysis findings.

FINAL REPORT & PRESENTATION

Begin your final report with an executive overview of the Risk Assessment Project. This will explain the objectives of the project, what was in scope, and what approach was used. Then provide a summary review of potential hazards.

CREATION OF EXECUTIVE REPORT

The findings from the Risk Assessment will form the basis for the final report. The purpose is to provide senior management with enough information to make them comfortable in endorsing the recommending strategies, actions, budgets or to accept the level of risk by not implementing recovery strategies. The report should include graphs, which visually demonstrate the findings. Do not overuse the graphs. Too many graphs and reports can make reviewing the information confusing. Provide graphs for overall information on the departments, financial impact, etc.

The final report should include:

1) Previous Disruption History.

2) Risks & Vulnerabilities.

3) Preventative Measures.

4) Presenting the Results.

5) Next Steps.

The Risk Assessment process is an essential phase of Continuity Planning. The possibility of a disaster impacting a business is unpredictable. The business should implement a comprehensive Continuity Planning Program and develop recovery plans that encompass all critical operations and functions of the business.

Conducting Risk Assessment

Bob Mehta is the owner of USA based Supremus Group LLC and is the contributing author for Supremus Group & is expert in regulatory compliance. For more details visit:
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Paradigms of Working Capital Management

INTRODUCTION

For increasing shareholder's wealth a firm has to analyze the effect of fixed assets and current assets on its return and risk. Working Capital Management is related with the Management of current assets. The Management of current assets is different from fixed assets on the basis of the following points:

Risk Management

1. Current assets are for short period while fixed assets are for more than one Year.

Paradigms of Working Capital Management

>2. The large holdings of current assets, especially cash, strengthens Liquidity position but also reduces overall profitability, and to maintain an optimum level of liquidity and profitability, risk return trade off is involved holding Current assets.

3. Only Current Assets can be adjusted with sales fluctuating in the short run. Thus, the firm has greater degree of flexibility in managing current Assets. The management of Current Assets helps affirm in building a good market reputation regarding its business and economic condition.

Now first let us discuss the paradigms of Working Capital Management.

CONCEPT OF WORKING CAPITAL:

The concept of Working Capital includes Current Assets and Current Liabilities both. There are two concepts of Working Capital they are Gross and Net Working Capital.

1. Gross Working Capital: Gross Working Capital refers to the firm's investment in Current Assets. Current Assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short-term securities, debtors (account receivables or book debts), bills receivables and stock (inventory).

2. Net Working Capital: Net Working Capital refers to the difference between Current Assets and Current Liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It includes creditors or accounts payables, bills payables and outstanding expenses. Net Working Copulate can be positive or negative. A positive Net Working Capital will arise when Courtney Assets exceed Current Liabilities and vice versa.

Concept of Gross Working Capital

The concept of Gross Working Capital focuses attention on two aspects of Current Assets' management. They are:

a) Way of optimizing investment in Current Assets.

b) Way of financing current assets.

a. Optimizing investment in Current Assets: Investment in Current Assets should be just adequate i.e., neither in excess nor deficit because excess investment increases liquidity but reduces profitability as idle investment earns nothing and inadequate amount of working capital can threaten the solvency of the firm because of its inability to meet its obligation. It is taken into consideration that the Working Capital needs of the firm may be fluctuating with changing business activities which may cause excess or shortage of Working Capital frequently and prompt management can control the imbalances.

b. Way of financing Current Assets: This aspect points to the need of arranging funds to finance Country Assets. It says whenever a need for working Capital arises; financing arrangement should be made quickly. The financial manager should have the knowledge of sources of the working Capital funds as wheel as investment avenues where idle funds can be temporarily invested.

Concept of Net Working Capital

This is a qualitative concept. It indicates the liquidity position of and suggests the extent to which working Capital needs may be financed by permanent sources of funds. Current Assets should be optimally more than Courtney Liabilities. It also covers the point of right combination of long term and short-term funds for financing court Assents. For every firm a particular amount of net Working Capital in permanent. Therefore it can be financed with long-term funds.

Thus both concepts, Gross and Net Working Capital, are equally important for the efficient management of Working Capital. There are no specific rules to determine a firm's Gross and Net Working Capital but it depends on the business activity of the firm.

Working capital management is concerned with the problems that arise while managing the current assets the current liabilities and the interrelationship that exits between them. Thus, the WC management refers to all aspects of a administration of both current assets the current liabilities.

Every business concern should not have neither redundant nor cause excess WC nor into should be short of W.C. both condition are harmful and unprofitable for any business. But out of these two the shortage of WC is more dangerous for the well being of the firms.

Impact/Harm of Redundant Or Excessive Working Capital

* Excessive WC means idle funds, which earn no profits for the business, cannot earn proper rate of return on its investment.

* When there is a redundant WC, it may lead to unnecessary purchasing and accumulation of inventories causing more chances if theft, waste and losses.

* Excessive WC implies excessive debtors and defective credit policy, which may cause higher incidences of bad debts.

* It may result into overall inefficiency in the organizations.

* When there is excessive WC relation with banks and other financial institutions may not be maintained.

* The redundant WC gives rise to speculative transaction.

* Due to low rate of return on investments the value of shares may also fall.

* In case of redundant WC there is always a chance of financing long terms assets from short terms funds, which is very harmful in long run for any organization.

Dangers of Short or Inadequate Working CapitalØ A concern, which had adequate WC, cannot pay its short-term liabilities in time. Thus it will lose its reputation and should be not be able to get good credit facilities.

* It cannot by its requirements in bulk and cannot avail of discounts. It stagnates growth.

* It becomes difficult for the firms to exploit favorable market conditions and undertake profitable projects due to non-availability of WC funds.

* The firm cannot pay day-to-day expenses of its operations and its credit inefficiencies, increases cost and reduces the profits of the business.

* It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds thus the firms profitability would deteriorate.

* The rate of return on investments also falls with the shortage of WC.

* Operating inefficiency creeps in and it becomes difficult to implement operating plans and achieve the firms profit targets.

Need for Working CapitalFor earning profit and continue production activity, the firm has to invest enough funds in Current Assets in generating sales. Current Assets are needed because sometimes sales do not convert into cash instantaneously and it includes an operating cycle.

Operating Cycle: Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. Investment in current assets such as inventories and debtors is realized during the firm's operating cycle, which is usually less than a year.

The operating cycle of a manufacturing company involves three phases: -

1. Acquisition of resources such as raw material, labor, power and fuel etc.

2. Manufacture of the product which includes conversion into work-in-progress into finished goods.

3. Sale of the product either for cash or on credit.

These phases affect cash flows because sometimes sale is done on credit and it takes sometimes to realize.

Length or Duration of the Operating Cycle: The length of the operating cycle of a manufacturing firm in the sum of the following:

1.Inventory Conversion period

2. Debtors Conversion periods.

The total of Debtors Conversion Period and Inventory Conversion Period is referred to as Gross Operating Cycle.

1. Inventory Conversions Period: The Inventory Conversion Period is the total time needed for Producing and selling the product. It includes:

a. Raw Material Conversion Period.

b. Work-in-progress Conversion Period.

c. Finished Goods Conversion Period.

2. Debtors Conversion Period: It is the time required to collect the outstanding amount from the customers.

Net Operating Cycle: Generally, a firm may resources (raw materials) on credit and temporarily postpones payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in Courtney Assets.

The length of the time in which the firm is able to defer payments on various resource purchases is Payables Deferral period. The deference between Gross Operating Cycle and payables Deferral Period is called Net Operating Cycle. If depreciation is excluded from Net Operating Cycle, the computation repercussion represents Cash Conversion Cycle. It is net time interval between cash outflow.

Operating Cycle also represent the time interval over which additional funds, called Working Capital, should be obtained in order to carry out the firm's operations. The firm has to negotiate Working Capital from sources such as banks. The negotiated sources of Working Capital financing are called non-spontaneous sources. If net Operating Cycle of a firm increases it means further need for negotiated Working Capital.

Calculation of Operating Cycle: The calculation of operating cycle helps to know the exact period of WC turnover i.e. how long it takes to convert cash again into cash? Through this calculation one can ascertain the WC period.

FORMULA: -Raw Material Holding Period = Avg. Stocks of Raw Material

Avg. cost of consumption per day

Work in progress Conversion Period = Avg. work in progress

Avg. cost of Production per day

Finished goods holding period = Avg. stock of finished goods

Avg. cost of goods sold per day

Receivables & Debtors collections Period = Avg. book debts.

Avg. credit sales per day

Credit period allowed by creditors = Avg. creditors

Avg. credit purchase

DURATION OF OPERATING CYCLE

GOC = RM + WIP + FG + D + R

NOC = GOC-C

Where GOV = Gross operating cycle.

NOC = Net operating cycle

RM = Raw material conversion period.

C = Credit period available

WIP = WIP conversion period

FG = FG holding period

D & R = Detors and receivables collection period.

Note:

360 working days in a year are taken to calculate per day average. Avg. means opening + closing /2 Depreciation is excluded while calculating cost of production & sales as it is a non-fund expense and does not require working capital.
Permanent and Variable Working Capital

There is always a minimum level of current Assets, which is continuously required by the firm to carry on its business operations. The minimum level of Current Assets is referred to as permanent of fixed Working Capital. It is permanent in the same way as the firm's fixed assets are. The extra Working Capital, needed to support the changing production and sales activities is called fluctuating or variable or temporary Working Capital.

Both Kinds of Working Capital, permanent and temporary, are necessary to facilitate production and sale through the operating Cycle.

Estimating Working Capital Needs: Working Capital needs can be estimated by three different methods, which have been successfully applied in practice. They are follows:

1. Current Assets Holding Period: To estimate Working Capital requirements on the basis of average holding period of Current Assets and relating them to costs based on the company's experience in the previous years. This method is based on the operating cycle concept.

2. Ratio of Sales: To estimate Working Capital requirements as a ratio of sales on assumption that Current Assets change with sales.

3. Ratio of fixed Investment: To estimate Working Capital requirements as a percentage of fixed investment.

The most appropriate method of calculating the Working Capital needs of firm is the concept of operating cycle. There are some limitations with all the three approaches therefore some factors govern the choice of method of Working Capital.

Factors considered are seasonal variations in operations, accuracy sales forecasts, investment cost and variability in sales price would generally be considered. The production cycle and credit and collection policy of the firm would have an impact on Working Capital requirements.

Current Assets Financing

A firm can adopt different financing policies for Current Assets Three types of financing used can be:

1. Long-term financing such as shares, debentures etc.

2. Short-term financing such as public deposits, commercial papers etc.

3. Spontaneous financing refers to the automatic sources of short-term funds arising in the normal course of a business such as trade credit (suppliers) and outstanding expenses etc.

The real choice of financing Current Assets is between the long term and short-term sources of finances. The three approaches based on the mix of long and short-term mix are:

1. Matching Approach: When the firm follows matching approach (also known as hedging approach), long term financing will be used to finance Fixed Assets and permanent Current Assets and short-term financing to finance temporary or variable Current Assets. The justification for the exact matching is that, since the purpose of financing is to pay for assets, the source of financing and the assets should be relinquished simultaneously so that financing becomes less expensive and inconvenient. However, exact matching is not possible because of the uncertainty about the expected lives of assets.

2. Conservative Approach: The financing policy of the firm is said to be a conservative when it depends more on long-term funds for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary Current Assets with long term financing. In the periods when the firm has no need for temporary Current Assets, the idle long-term funds can be invested in the tradable securities to conserve liquidity. Thus, the firm has less risk of shortage of funds.

3. Aggressive Approach: An aggressive approach is said to be followed by the firm when it uses more short term financing than warranted by the matching approach. Under an aggressive approach, the firm finances a part of its permanent current assets with short term financing. Some firms even finance a part of their fixed assets with short term financing which makes the firm more risky.

Managing Current Assets: Management of Current Assets is done in three parts. They are:

1) Management of cash and cash equivalents.

2) Management of inventory.

3) Management of accounts receivable and factoring.

Thus, the basic goal of WC management is to manage the current assets the current liabilities of the firm in such a way that a satisfactory level of WC is maintained, i.e. it is neither inadequate nor excessive WC management policies of a firms have a great effect on its Profitability, Liquidity and Structural health of the organization.

WC management is an integral part of overall corporate management. For proper WC management the financial manager has to perform the following basic functions:-

· Estimating the WC requirement.

· Determining the optimum level of current assets.

· Financing of WC needs.

· Analysis and control of WC.

WC management decision are three dimensional in nature i.e. these decisions are usually related to these there sphere or fields.

· Profitability, risk and liquidity.

· Composition and level of current assets.

· Composition and level of current liabilities.

PRINCIPLES OF WORKING CAPITAL

There are four principle of working capital management. They are being depicted as below :

(i) Principle of Risk Variation: - The goal of WC management is to establish a suitable trade between profitability and risk. Risk here refers to a firm's ability to honor its obligation as and when they become due for payments. Larger investment in current assets will lead to dependence. Short term borrowings increases liquidity, reduces risk and thereby decreases the opportunity for gain or loss On the other hand the reserve situation will increase risk and profitability And reduce liquidity thus there is direct relationship between risk and profitability and inverse relationship between liquidity and risk.

(ii) Principle of Cost Capital: - The various sources of raising WC finance have different cost of capital and the degree of risk involved. Generally higher the cost lower the risk, Lower the risk higher the cost. A sound WC management should always try to achieve the balance between these two.

(iii) Principle of Equity Position: - This principle is considered with planning the total investment in current assets. As per this principle the amount of WC investment in each component should be adequately justified by a firms equity position Every rupee contributed current assets should contribute to the net worth of the firm The level of current assets may be measured with the help of two ratios. They are:

· Current assets as a percentage of total assets.

· Current assets as a percentage of total sales.

(iv) Principle of Maturity Payment: - This principle is concerned with planning the source of finance for WC. As per this principle a firm should make every effort to relate maturities of its flow of internally generated funds in other words it should plan its cash inflow in such a way that it could easily cover its cash out flows or else it will fail to meet its obligation in time.

REFERENCE

Anand, M. 2001. "Working Capital performance of corporate India: An empirical survey", Management & Accounting Research, Vol. 4(4), pp. 35-65. Bhalla, V. K., 'Working Capital Management', Anmol, New Delhi, 2005. Bhattacharya, Hrishikes, 'Working Capital Management: Strategies and Techniques', Prentice-Hall of India Products, 2004. Burns, R and Walker, J. 1991. "A Survey of Working Capital Policy Among Small Manufacturing Firms", The Journal of Small Business Finance, 1 (1), pp. 61-74 Padachi, Kesseven, 'Trends in working capital managmenet and its impacts on firms performance: An analysis of Mauritius small manufacturing firm', International Review of Business Research Papers, Vol. 2., October 2006, p-45-58. Sadri, Sorab & Tara, Sharukh, N., 'Understanding Working Capital Management', Rai Business School, Mumbai, March 25, 2006.

Paradigms of Working Capital Management

Rural Labor Enquiry, A Report on wages & earnings of Rural Labor Household, 38th round National sample survey, Labor bureau, Ministry of Labor, Government of India, Shimla Chandigarh

H. L Kumar, Labor Laws, Universal Law Publishing Co. Pvt. Ltd., G.T. Karnal Road, Delhi-110033

K. Aswathappa, Business Environment, Himalaya Publishing House "Ramdoot" Dr. Bhalerao Marg, Girgaon, Bombay-400004

C.R. Kothari, Research Methodology, New Age International (P) Ltd. Publishers, Ansari Road, Daryaganj, New Delhi-110002

Dr. M.M.Varma & R.K. Agrawal, Mercantile and Industrial Law, King Book Publishers, 1684, Nai Sarak Delhi-110006

S. C. Shrivastava, Industrial Relations and Labor Laws, Vikas Publishing House, 576, Masjid Road Jangpura, New Delhi-110014

Mamoria, C.B. (1999): 'Personnel Management' Himalaya Publication, New Delhi. Kothari, C.R. (2000): 'Research Methodology' Vishwa Prakashan, New Delhi. Aswathapa K. (1997) Human Resource and Personnel Management, Tata McGraw Hill, New Delhi. V. S. P. Rao (2005) Human Resource Management, Excel Books , New Delhi Bhatia: Compensation management.

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Risks in International Business

Just as there are reasons to get into global markets, and benefits from global markets, there are also risks involved in locating companies in certain countries. Each country may have its potentials; it also has its woes that are associated with doing business with major companies. Some of the rogue countries may have all the natural minerals but the risks involved in doing business in those countries exceed the benefits. Some of the risks in international business are:

(1) Strategic Risk
(2) Operational Risk
(3) Political Risk
(4) Country Risk
(5) Technological Risk
(6) Environmental Risk
(7) Economic Risk
(8) Financial Risk
(9) Terrorism Risk

Risk Management

Strategic Risk: The ability of a firm to make a strategic decision in order to respond to the forces that are a source of risk. These forces also impact the competitiveness of a firm. Porter defines them as: threat of new entrants in the industry, threat of substitute goods and services, intensity of competition within the industry, bargaining power of suppliers, and bargaining power of consumers.

Risks in International Business

Operational Risk: This is caused by the assets and financial capital that aid in the day-to-day business operations. The breakdown of machineries, supply and demand of the resources and products, shortfall of the goods and services, lack of perfect logistic and inventory will lead to inefficiency of production. By controlling costs, unnecessary waste will be reduced, and the process improvement may enhance the lead-time, reduce variance and contribute to efficiency in globalization.

Political Risk: The political actions and instability may make it difficult for companies to operate efficiently in these countries due to negative publicity and impact created by individuals in the top government. A firm cannot effectively operate to its full capacity in order to maximize profit in such an unstable country's political turbulence. A new and hostile government may replace the friendly one, and hence expropriate foreign assets.

Country Risk: The culture or the instability of a country may create risks that may make it difficult for multinational companies to operate safely, effectively, and efficiently. Some of the country risks come from the governments' policies, economic conditions, security factors, and political conditions. Solving one of these problems without all of the problems (aggregate) together will not be enough in mitigating the country risk.

Technological Risk: Lack of security in electronic transactions, the cost of developing new technology, and the fact that these new technology may fail, and when all of these are coupled with the outdated existing technology, the result may create a dangerous effect in doing business in the international arena.

Environmental Risk: Air, water, and environmental pollution may affect the health of the citizens, and lead to public outcry of the citizens. These problems may also lead to damaging the reputation of the companies that do business in that area.

Economic Risk: This comes from the inability of a country to meet its financial obligations. The changing of foreign-investment or/and domestic fiscal or monetary policies. The effect of exchange-rate and interest rate make it difficult to conduct international business.

Financial Risk: This area is affected by the currency exchange rate, government flexibility in allowing the firms to repatriate profits or funds outside the country. The devaluation and inflation will also impact the firm's ability to operate at an efficient capacity and still be stable. Most countries make it difficult for foreign firms to repatriate funds thus forcing these firms to invest its funds at a less optimal level. Sometimes, firms' assets are confiscated and that contributes to financial losses.

Terrorism Risk: These are attacks that may stem from lack of hope; confidence; differences in culture and religious philosophy, and/or merely hate of companies by citizens of host countries. It leads to potential hostile attitudes, sabotage of foreign companies and/or kidnapping of the employers and employees. Such frustrating situations make it difficult to operate in these countries.

Although the benefits in international business exceed the risks, firms should take a risk assessment of each country and to also include intellectual property, red tape and corruption, human resource restrictions, and ownership restrictions in the analysis, in order to consider all risks involved before venturing into any of the countries.

Risks in International Business

Dr. Sidney Okolo is a professor, consultant, strategist, and Africa expert. He is affiliated to several universities, the Managing Director of International Business Associates, a management consulting firm, and also the CEO of Global Education Support, an education assistance program.

Among other things, he engages in all aspects of learning, knowledge, organization and human change. His focus is on leadership, management, entrepreneurship, profit engineering, human potential, excellence, achievement, business strategy, research and development. Product management, change management, conflict management, athlete management, marketing, business development and operations. He works with clients to adapt to change due to change in factors of production, technology, goods and services. He engages clients in training, retraining, development, skills enhancement, association, behavior modification, ways of thinking, and attitude adjustment. In addition to his work in the United States, his focus is also on developing countries in the continent of Africa, their leadership, culture, economic and market structure, community planning and development, and his created four letter word, "PIES", which stands for: poverty, instability, ethnicity, and sectarianism.

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Risk Management

What is Risk Management?

Without referring to the millions of websites and documents knocking about that talk about Risk Management, I want to try and give a simple view from the perspective of someone who has to manage risk day to day across major projects. This is real risk management, hands on.

Risk Management

Of course, "Risk" and "Risk Management" will have variations of the same general meaning depending on the circumstances or context to which it is applied, but in principle, all risk management will follow more or less the same process.

Risk Management

So, what is a Risk? A risk can be any influence on an expected or planned outcome that changes that outcome. In child-talk, it's anything that could stop you getting what you want or expect.

Here's an important note: Risk hasn't happened yet. If the outcome has already changed as a result of a risk "happening" then it's no longer a Risk, it's an Issue and has to be managed differently.

So basically - A risk is something, anything, that could happen that will impact or change a desired or planned outcome. There are so many different ways to state this that, as simple as the concept is, it can easily get confusing. Let me give you an example;

"If it rains today then the field trip has to be cancelled" - the risk is that it may rain. The impact is that the planned trip will have to be cancelled. Risk Management is recognizing the risk potential analyzing the probability and impact and either mitigating it or preparing alternative options that will allow the original plan to succeed.

Risk Management 101

On some of my projects in Asia I've had to seriously consider the impact of rain on project outcomes. I was on one job in Korea, Seoul, where we had a limited time to move a banks' trading office from an old building that had been sold off, to a new building. The old building owner declared bankruptcy and sold off the office block. The new owner, the government, kicked everyone out on short notice. We had 3 months to find a new building, fit it out and move 200 staff including 120 trading positions.

This really tested my teams Risk Management ability. This was a working business, the only window to move the 200 staff was over a weekend - after trading stopped on Friday evening and before it started on Monday Morning. Guess what, we had a Typhoon heading in, and for those that don't know how things work in Asia - Typhoons are given warning signals as they approach by the local authorities.

Each signal indicates a level of "threat" and or probability of a direct strike. As the signal rises in strength the threat (and danger to life and property) becomes imminent and public services shut down. People are told to go home or stay off the streets and, for several hours to several days, everything grinds to a halt.

I had a stressful time managing risk by the hour. The decision to roll back the move to the old office or proceed and hope we got everything in before the typhoon hit was a 15 minute review, every 15 minutes for the first half of the weekend. That was Risk Management like I never had to manage before. Risk Management is critically important to project work.

What is Risk Management?

So, the meaning of "What is a Risk" should, I hope, be graphically clear now..? Risk Management is the process of managing risk as it relates to specific circumstances. The techniques, tools and processes used to manage risk are quite pragmatic and common-sense. But we all know that there's no such thing as "Common Sense" so the best way to get a consistent framework around managing risk is to learn some best practices based on industry proven templates and methodologies.

I'm not here to push one methodology or best practice against another. I have my personal preferences based on my industry and experience but I know and have seen many other project managers use varying techniques and tools in Risk Management, all valid and most of them effective at doing the job.

In a follow up article I will talk more specifically about Project Risk Management. I'll share some templates and examples and hopefully stir up some discussions too. There's no one right way to do Risk Management but there is a consistent framework that should be followed and there are some very good industry standards in Risk Management space.

Risk Management

If you would like to read more on Project Management and some of the Challenges Project Managers face, please go to IT Project Management Singapore for more great information. Here you will also find links to key resources and organisations that can provide first class Project Management services to any business, small or large, local or international. We have a range of professional services partners that have a great track record of services delivery across Asia.
If you'd like to read more articles on key Project Challenges or just learn more, click here for further reading Risk Assessment Matrix.
Best Regards,
Pete

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Information On Risk Management

Risk management is one of the most important parts of any business activity. Risk management is the assessment of risks related to a product, managerial decision, or any other company policy. It is an important aspect as it familiarizes the faculty with probable risks and also helps put up a backup plan in case of failure and worst case scenario conditions. Risks can be incurred from instability in various fields like finance, marketing, credit, legal issues and also from natural disasters, accidents attack from competitor or adversary etc. Risk management involves avoiding the activities that will lead to a risk or threatening condition and if a threat does occur then having a mechanism in place to deal with it.

Risk management is a simple process if done in a proper manner. It usually comes into play after the development phase of a project or before designing of a new project. There are a few simple pointers one must remember to put up a risk management plan. First of all identify the areas where risk can occur. Then identify the risk. Determine what losses will occur if risk does actually take place. Formulate a plan to ensure that all the processes and activities in the company are carried out in such a way that minimum risk is involved. But sometimes you cannot ensure that risk will not occur like in case of human error or natural disasters. For such cases formulate a risk detection and recovery plan. For new products consider product liabilities and risks involved with the product.

Risk Management

Though no matter how much planning is done only experience can help avoid risks. So regular meetings and discussions must be carried out for up-gradation and re-fabrication of risk management plan. For financial risk management the market should be studied regularly and proper investments and research should be done. Whenever making a decision on company policy or launching a new product all legal liabilities must be considered. It is a must to take human error into consideration. Human error cannot be predicted and hence risk assessment in such cases becomes difficult. But still every possible error should be considered as far as possible and a plan for risk management and recovery must be formulated. This can involve easy undo options or double check mechanism for critical process, auto save on unexpected shutdown etc.

Information On Risk Management

One of the major risk conditions occurs during a natural disaster. Though they don't occur that often they are the most dangerous in terms of risk for any organization. A company has loads and loads of date stored in databases of different types. This data contains important information like customer records, employee records, sales information, product information, management policies etc. A natural disaster like earthquake, volcano eruption or tornado can destroy these databases and make the company lose all its vital and sensitive information gathered from years of research. To avoid this strong and effective risk management plans for natural calamities must be formulated. Such a risk management plan involves making of duplicate databases with all sensitive information and storing them as backups in some other safe location. Also in case of failure of system these databases can be used to continue operation of critical processes.

Risk management is of great importance in any company policy and must be strongly implemented to ensure optimized working of the organization.

Information On Risk Management

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Project Management - Risk Management

There are some factors to consider when identifying risk in a project. A risk is known as some future happening that results in a change in the environment. It has associated with it a loss that can be estimated, a probability that the event will occur, which can be estimated, and a choice on the projects manager's part as to what to do, if anything, to mitigate the risk and reduce the loss that will occur.

During the project planning process, the risk assessment which is normally completed during the development of the Business Case is reviewed and updated by the project team. Risk assessment is formalized subjective assessment of the probability of project success. Risk assessment has an obvious impact on the management style, team structure, use of methodology, strategies for system development, and, most importantly, the business decision to approve the project.

Risk Management

Simply, the greater the risk of the project, the higher the probability that estimates, schedules, and planning will be incorrect and that the project will move "out of control". The risk of a project can be established by considering the following criteria;

Project Management - Risk Management

What are the risks? What is the probability of loss that results from them? How much are the losses likely to cost? What might the losses be if the worst happens? What are the alternatives? How can the losses be reduced or eliminated? Will the alternatives produce other risks?

The business decision is to assess how the expected loss compares to the cost of defraying all or some of the loss and then taking the appropriate action.

It is mandatory that, throughout the system development process and especially during project planning, the project manager consider these project risk criteria using a formal questionnaire and develop a risk mitigation list. If the project manager considers the combination of any of these factors is significant and contributes to the degree of risk of the project, he or she is encouraged to consider the following actions;

Take steps to limit the scope of the project to reduce its complexity Document the areas of complexity in the Project Plan and allow for additional time/resources Raise a formal Risk Memorandum that details the high-level factors, identifies their possible impact and actions/options available to reduce that impact or reduce the risk factor.

It is imperative that the management of project risk is seen as a proactive process. For example, prior to the commencement of the full development cycle, the project manager should negotiate with the Steering Committee, key stakeholders and sponsor to minimize the high-risk factors.

To increase the likelihood of project success, the project team must put in place a program that identifies risks and steps to mitigate that risk. The management and minimization of project risk is the responsibility of all involved parties in the project.

Project Management - Risk Management

CER1projectmanagement has been involved with Project Management since 1996, and has completed many varied and complex projects for both small and large organisations.

http://www.cer1projectmanagement.com provide informative articles, templates and other resources on everything you'll ever need to know about Project Management.

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