Risk Management

Background
• The history of Risk may be traced back to around
3200 BC in the Tigris Euphrates Valley
• Insurance, one of the oldest strategies for handling
risk, 4000 years ago in Mesopotamia
• In the 4th century BC and 1st century BC, the Greeks
and Romans successfully observed causal relationship
between disease and exposure, respectively
• It appears that the modern term “Risk Management”
was first used in the early 1950s and also it apeared in
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Harvard Business Review in 1956
 Risk management related terms and definitions

• Risk Management: This is the total process of risk

assessment and risk control.
• Risk Assessment: This is the process of risk evaluation
and risk analysis
• Risk Control: This is the process of decision-making to
manage risk, and the implementation, enforcement, and
re-evaluation of its effectiveness from time to time,
making use of risk assessment results as one input.

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 Risk management related terms and definitions

• Risk Evaluation: This is the stage at which

judgements and values enter into the decision
process by including consideration of estimated
risks’ importance and associated economic, social,
and environmental consequences, in order to
highlight various alternative to manage risks.
• Risk: This is a measure of probability and severity
of a negative effect to environment, equipment
/property, or the health.

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 Risk management related terms and definitions

• Risk Estimation: This is the process

employed to generate a measure of the level
of environmental, equipment/property, or
health risks being analyzed. Risk estimation
is composed of steps: frequency analysis,
consequence analysis, and their integration.

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 Risk management related terms and definitions

• Risk Analysis: This is the utilization of

currently available information to determine
from hazards the risk to individuals or
groups, equipment/property, environment.
Usually, risk analysis is composed of a
number of steps: Scope definition, hazards
identification, and risk estimation.

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 Risk management related terms and definitions

• Risk-benefit Analysis: This is the

evaluation of risks and benefits of some
activity/agent normally based on the
consideration of economic conditions.
• Risk Perception: This is how the risk is
perceived by the individual or different
groups.

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 Risk management related terms and definitions

• Risk Communication:
Risk communication tasks have been divided
into four general types according to their
primary objective or intended effect:
1) Information and education;
2) Behavior change and protective action;
3) Disaster warnings and emergency information;
4) Joint problem solving and conflict resolution

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential
Reliability
Reliability is the probability that the system will
perform its intended function under specified
working condition for a specified period of time.

Mathematically, the reliability function R(t) is the

probability that a system will be successfully
operating without failure in the interval from time 0
to time t,
R(t) = P(T>t), t≥0
Where, T is random variable representing the failure time or
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Basic concept of risk, reliability and hazard potential

Reliability

The failure probability, or unreliability, is then

F(t) = 1 - R(t) = P(T≤t)

Which is known as the distribution function of T.

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 Basic concept of risk, reliability and hazard potential
Hazards
• This is the source of energy and the physiological and
behavioral factors which, when uncontrolled effectively,
results in harmful occurrences

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Basic concept of risk, reliability and hazard potential

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Basic concept of risk, reliability and hazard potential

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CONSEQUENCES RESOURCES

RISK
COMPONENTS

MODIFYING
THREATS FACTORS

Components of Risk
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 TYPES OF RISK
• Accident Risk: This is concerned with the
occurrence of accidents that may result in
deaths, injuries, or damage to property.
• Natural Disaster and Fire Risk: This is
concerned with the occurrence of fire and
natural disasters that may lead to deaths,
injuries, or damage to property.
• Social and Political Risk: This is concerned
with nationalization, government legislation,
terrorism, kidnapping, etc.
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 TYPES OF RISK

• Technical Risk: This is concerned with

failure to make technological breakthrough,
sudden change due to technological
developments, etc.
• Marketing Risk: This is concerned with
rejection by potential customers, ineffective
marketing, etc.

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 TYPES OF RISK

• Liability Risk: This is concerned with

various aspects of liability.
• Labor Risk: This is concerned with the
unavailability of required labor force, poor
labor relations, etc.

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About …

Risk
Risk Management
Management
 What
What is
is Risk
Risk Management?
Management?

Who
Who uses
uses Risk
Risk Management?
Management?

How
How is
is Risk
Risk Management
Management used?
used?

Risk
Risk Management
Management in
in Customs
Customs

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 What
What is
is Risk
Risk Management?
Management?

• Good management practice

• Process steps that enable improvement
in decision making
• A logical and systematic approach
• Identifying opportunities
• Avoiding or minimising losses

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 What
What is
is Risk
Risk Management?
Management?

Risk Management is the name given

to a logical and systematic method
of identifying, analysing, treating
and monitoring the risks involved in
any activity or process.

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What
What is
is Risk
Risk Management?
Management?

Risk Management is a
methodology that helps managers
make best use of their available
resources

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 Who
Who uses
uses Risk
Risk Management?
Management?
•• Finance
Finance and
and
Risk Management
Investment
Investment
practices are widely used
in public and the private •• Insurance
Insurance
sectors, covering a wide
•• Health
Health Care
Care
range of activities or
operations. •• Public
Public
Institutions
Institutions
These include:
•• Industries
Industries
•• Governments
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Types
Types of
of Risk
Risk Management?
Management?
 How
How is
is Risk
Risk Management
Management used?
used?

The Risk Management

process steps are a
There are
generic guide for
any organisation, 7 steps
regardless of the in the RM
process
type of business,
activity or function.

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The basic process steps are:

Establish
Establish the
the context
context

Identify
Identify the
the risks
risks

Analyse
Analyse the
the risks
risks

Evaluate
Evaluate the
the risks
risks

Treat
Treat the
the risks
risks

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‘Risk’ is dynamic and subject to constant
change, so the process includes
continuing:

Monitoring
Monitoring and
and review
review

and

Communication
Communication && consultation
consultation

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The Risk Management process:
Establish
Establish the
the context
context

The strategic and organisational context

in which risk management will take
place.
For example, the nature of your system,
the risks inherent in your system and
your priorities.

Communicate
Communicate && consult
consult Next
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The Risk Management process:
Identify
Identify the
the risks
risks
Defining types of risk, for instance,
‘Strategic’ risks to the goals and
objectives of the organisation.
• Identifying the stakeholders, (i.e.,who
is involved or affected).
• Past events, future developments.
Monitor
Monitor and
and review
review
Communicate
Communicate && consult
consult Next
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The Risk Management process:
Analyse
Analyse the
the risks
risks

How likely is the risk event to happen?

(Probability and frequency?)
What would be the impact, cost or
consequences of that event occurring?
(Economic, political, social?)

Monitor
Monitor and
and review
review
Communicate
Communicate && consult
consult Next
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The Risk Management process:
Evaluate
Evaluate the
the risks
risks

Rank the risks according to

management priorities, by risk
category and rated by likelihood and
possible cost or consequence.
Determine inherent levels of risk.

Monitor
Monitor and
and review
review
Communicate
Communicate && consult
consult Next
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The Risk Management process:
Treat
Treat the
the risks
risks

Develop and implement a plan with specific

counter-measures to address the
identified risks.
Consider:
• Priorities (Strategic and operational)
• Resources (human, financial and technical)
• Risk acceptance, (i.e., low risks)
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 The Risk Management process:
Monitor
Monitor and
and review
review
In identifying, prioritising and treating risks,
organisations make assumptions and decisions
based on situations that are subject to
change, (e.g., the business environment,
trading patterns, or government policies).
Risk
Risk Management
Management policies
policies and
and decisions
decisions
must
must be
be regularly
regularly reviewed.
reviewed.

Communicate
Communicate && consult
consult Next
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The Risk Management process:
Monitor
Monitor and
and review
review
Risk Managers must monitor activities and
processes to determine the accuracy of
planning assumptions and the effectiveness
of the measures taken to treat the risk.
Methods can include data evaluation,
audit, compliance measurement.

Communicate
Communicate && consult
consult Next
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Overview of a typical The Risk Management process:

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RISK MANAGEMENT

RISK REDUCTION
RISK ASSESSMENT
Activity Option Analysis Implementation
Characterisation


 Monitoring
Hazard Identification


Decision Making Audit or Review
Risk Estimation

RISK EVALUATION
RISK ANALYSIS
The Risk Management process:

atiioonn
onssuullttat
Establish
Establish the
the context
context
ing anndd rreevviieew
w

n && ccon
Identify
Identify the
the risks
risks

Analyse
Analyse the
the risks

icaattiioon
risks
Moonniittoorring a

Evaluate
Evaluate the
the risks

muunnic
risks

mm
Treat
Treat the
the risks
risks

CCoom
M

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 Risk
Risk Management
Management in
in Customs
Customs
Customs administrations have turned
increasingly to Risk Management as an
effective means of meeting national
objectives.
Administrations provide facilitation while
maintaining control over the international
movement of goods and persons.
Risk management helps in matching Customs
priorities to resources.

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 Risk
Risk Management
Management in
in Customs
Customs

Why
Why you
you should
should use
use Risk
Risk Management:
Management:
• Economic benefits, by facilitating the
movement of goods, ships, aircraft and
people – when rated low risk.
• Makes more effective use of existing skills
and experience – giving better results.
• Improves the quality of Customs controls –
information and accountability.
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 Risk
Risk Management
Management in
in Customs
Customs

Why
Why you
you should
should use
use Risk
Risk Management:
Management:

The process helps Administrations

focus on priorities and in decisions on
deploying limited resources to deal with
the highest risks.

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 Functions
Functions of
of aa risk
risk manager?
manager?

A risk manager performs various types of

tasks. Some of the major functions of a
typical risk manager could be as follows:-
• Providing assistant in developing risk
management policy
• Get involved in risk identification and
measurement
• Communicate with other managers
•Manage risk functions
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 Functions
Functions of
of aa risk
risk manager?
manager?

• Choose risk financing alternatives

•administered claims
•Supervise loss prevention and internal
administration
• Negotiate insurance coverage in an
effective manner
•Administer employee benefits
• Handle accounting

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THANKS

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