Chapter 23: Risk Management

For the smooth sailing of any business, it is important that the business risks are identified and managed effectively. Customers always look for a well-defined risk mitigation plan.

A risk is any threat that an event or action will adversely affect the business and its objectives. Risk can be defined as the combination of the probability of an event occurring and the consequences if that event does occur. This gives us a simple formula to measure the level of risk in any situation.

·?????? Risk = Likelihood x?Severity

·?????? Risk= Failure probability x Damage related to the failure

·?????? Risk= Likelihood x Potential impact

Risk Management – Risk Management is a process of thinking systematically about all the possible risks or problems before they happen and setting up mitigation plans that will minimize the risk for continuing business operations as usual.

An instructor on fire-safety and first aid, was explaining to the participants that “fire does not destroy so many people; it is the stampede created by people without knowing the process to evacuate from the incident spot that destroys thousands”. If you review the various fire accidents, you will realize that this is true. The periodical evacuation drills are conducted to ensure systematic evacuation of people in the shortest possible time, thus mitigating the risk and loss of life.

How to manage the risk? Risk is managed by way of creating risk assessment through a mitigation plan (template provided below). Let us take an example of driving a car on a highway and the few risks associated with this: vehicle meeting with an accident, flat tyre, fuel getting emptied, driving on wrong route and over speeding. To mitigate these risks mentioned, the driver should possess some basic knowledge of the vehicle like controlling the vehicle speed, process to change the flat tyre, basic diagnosis process to understand the fault/mechanical failures, when to fill the fuel and the speed limit which gives better control of the vehicle. If a driver does not bother about preventing or taking care of the above risks and just takes the key and drives away, there is a high probability of facing one or more risks that are listed above. If the driver of the car is not prepared to face these, then managing it becomes difficult when one encounters them.

Similarly, in business, list down the risks which might occur and disturb the normal running of business. Certain risks are soluble by itself, whereas for the others you need to have a well-defined mitigation plan. These mitigation plans will help you to manage risk with a minimal impact. Take the example of an annual preventive maintenance schedule. Various maintenance activities are undertaken for the electrical/mechanical equipment and few upgrades/changes are planned as well. First, we must prepare a plan to execute all these activities.? Whenever upgrades/changes planned, we come up with the roll-back plan for them as well. The roll-back plan helps us to bring back the system to an original condition in case of upgrade/changes did not deliver the desired results. Such risk mitigation plans help to gain the confidence of a customer.

While taking up new initiatives to improve the service levels or operational efficiency, there are a few teething issues that you might encounter. Success is assured when you know which are the likely risks and have a well-defined risk mitigation plan. To learn swimming, one must jump into the water; the risk of getting drowned always exists, but the objective is not to get drowned but to swim. Many learn swimming as they risk their life, and few give up swimming after the very first session as they are more focused on getting drowned rather than learning to get across.

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1.?? Identify the things that might disturb a normal life or business-risk factors.

2.?? Prioritize the risks by assigning the rating (low–medium–high), which is normally called RPN-Risk Priority Number.

3.?? Work on a risk mitigation plan.

4.?? Review periodically the risk factors and RPN.

5.?? Accounting to a certain amount of calculated risk is essential.

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