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Risk Management Options
by Paul Bower
More Management Articles
Published on this site: June 30th, 2008 - See
more articles from this month
Risk management as a shared or centralized activity must
accomplish the following tasks: identity concerns; identify
risks & risk owners – evaluate the risks as to likelihood
and
consequences; assess the options for accommodating the risks;
prioritize the risk management efforts; develop risk management
plans; authorize the implementation of the risk management
plans; track the risk management efforts and manage accordingly.
It is possibilities that are being accommodated. It is
management's job to do the planning that will accommodate the
possibilities. The customer is the final judge, but internal
goals should be to a higher level than customer expectations.
The key words in risk management are: proactive; management;
accommodate; acceptably; professional; possibility. The need for
new risk assessment and management techniques is required to
continuously track down potential and critical risks, and to
develop strategies for handling these risks, for example: during
product development. It is obvious that without a strong risk
management plan as part of the process, a company will waste
time, money, and resources, and will fail to manage the projects
correctly.
Risk management is the sum of all proactive management-directed
activities within a program that are intended to acceptably
accommodate the possibility of failures in the elements of a
program. From an organization's perspective a failure is
anything accomplished in less than a professional manner and/or
with a less-than-adequate result.
Risk Management Options
Risk management options are usually cited as risk handling
options subdivided as: avoidance, control, assumption, risk
transfer, and knowledge and research. Generally, the assessment
of management options is a hip shot since the necessary
decisions must occur early in a program when things are still
fuzzy. However, if experienced personnel are given the facts,
one can expect very good decisions since there is seldom any
real mystery about the practicality of options available. (The
practicality of any option is usually just an issue of schedule
and funding.)
- Avoidance: Use an alternate approach that does not have
the risk. This mode is not always an option. There are programs that
deliberately involve high risks in the expectation of high
gains. However, this is the most effective risk management
technique if it can be applied.
- Control: Controlling risks involves the development
of a risk reduction plan and then tracking to the plan. The key aspect
is
the planning by experienced persons. The plan itself may involve
parallel development programs, etc.
- Assumption: Simply accepting the risk and proceeding. However,
there can be a tendency within organizations to gradually let
the assumption of a risk take on the aura of a controlled risk.
- Risk Transfer: Means causing another party to accept
the risk, typically by contract or by hedging. Liability among
construction or other contractors is often transferred this way.
- Knowledge & Research: This mode is not "true" risk handling,
but rather a technique for strengthening other techniques. This
approach can best be viewed as an adaptation of the approach
used by a student writing a thesis: intensive study with
specialized testing – in other words doing your homework.
Never expect initial risk management plans to be perfect.
Practice, experience, and actual loss results will dictate
changes in the plan to allow different decisions to be made in
dealing with the risks being faced. In order for companies to
succeed in the twenty-first century, they need to excel in all
aspects of their business, which includes risk management, so
they can fulfill their own and their customer's goals.
Conclusion
Risk management is an on-going process, and is a combination of
proactive management-directed activities within a program that
are intended to accommodate the possibility of failures.
Paul Bower: For more information on risk management,
visit www.afaprojects.com/training_m_o_r.asp.
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