Risk Identification Process - Essay Example

?Risk Management Introduction Risk management in the corporate world means to identify potential risks analyze them, monitor them and take measures that may reduce or mitigate the risk that a certain project, process or regular course of business might face. Whenever a project is undertaken, an entity is open to number of potential risks. These risks may lead to such events that would prevent the project from processing as planned. However, they might not be evident at the time when decisions for the investment is taken and if they are not identified in advance company would have to bear costs and financial loss (HENRIK, 2007). Risk management is the concept that allows the management to look after future uncertainties like that of high inflation, volatility of market, recession, change in market demand, competitors, change in regulations, etc. Therefore it becomes a responsibility of the management to analyze and identify such risks. Otherwise, they may lead to financial turmoil and create issues like liquidity or even bankruptcy (Georges, 2013). Under the financial markets where uncertainties are high and investors expect to receive good returns, a diversified portfolio is maintained by the financial institutions. This is done in order to minimize the exposure to the risk by making investments in both equity funds and fixed deposits. It can also be said that risk management is the mitigation of the uncertainties, hence, allowing better decision making and prediction regarding the future outcome (Alexander, 2001). Risk Identification Risk management is part of the regular management processes and responsibilities in the organization. It is an ongoing process that continues throughout the life of the project. It is often seen that entities face issues in locating and identifying the risks that may hamper their project or investment. Risk management is the two-step process. In the first stage, it involves identification of the risks and then makes initiatives that would curtail those risks. Thus, it is important to identify the risks specific to the project or investment. Failure to identify project specific risks leads to weak decision making or unnecessary measures that lead to wastage of resources. Risk identification has been a challenging task for the management. Other than few general terms of risk, they find it hard to locate the barriers that might hamper the success of their project or entity as a whole. Like risk management, risk identification is also a complete process and different methods or techniques can be used for successful identification (H. & J., 1999). With proper management, it is probable that most of the associated risks can be identified. Before discussion of the risk identification techniques or methods it is important to discuss its purpose, scope and process. Risk identification process Risk identification is a deliberate and a systematic process to identify and document the potential key risks that the organization as a whole might face. The objective is to understand what would be at stake. The risk identification process should cover all the risks irrespective of whether they are in control of the organization or not (Lubka, 2002). It is a diverse process and requires inputs from all the stakeholders of the organization, whether internal or external. Following briefly highlights the risk identification process: Risk identification usually starts before the project is initiated and the number of risks increase as the project matures through the lifecycle (Merna & Al-Thani, 2005). Identification can be of both, operational risks that are associated with the organization as a whole or project risks specific to the project. Methods that the management would be using to identify the risks and set of different sources that would be used to gather the information. It is important that set of risk identification tools and techniques is used Identified risks must be documented and the probability of occurrence of such event evaluated in order to analyze the resources that would be required to control the risk (Segal, 2011). Communication is very important part of the process. Risk communication is necessary as it brings risk factor or events to the attention of project manager and the project team (Barton 2001). Risk awareness is necessary as project team members must be aware of what constitutes to be the risk and level of sensitivity required for certain events that may have a positive or negative impact over the project (Coyle, 2004). Risk Identification methods and techniques There are many different tools, techniques and methods that can be used to identify risks the objective is to gather the extent from different sources both internal and external to the organization. It is necessary to make the extent of identification diverse. Due to the fact that risks are of both intrinsic and extrinsic in nature, they may be or might not be in control of the organization (R., et al., 2003). Following are the methods, tools and techniques briefly discussed that can be adopted by the organization’s management for the identification of both operations and project risks: Checklists and surveys This is one of the most common risk identification technique adopted by the management. It is not a complicated technique or method to gather information. Itcan be used by the non-risk management personnel with less training and expertise in the field (Authority, 2010). Checklists and surveys involve assessing the trends in the market and identifies a large number of hazards. However, it does not prioritize them and it does not provide specific information. Thus, it doesn’t cover all the aspects. Brainstorming It is yet another very common technique of risk identification. It involves free will discussions and analysis. It is basically a creativity technique (Ana-Maria, 2012). A team of professionals or experts is organized that identify many risks, define their scope and discuss the ideas or the methods that could be used to mitigate the risk. It is also the method to encourage team building and coordination amongst the employees in order to monitor and manage the risks. Delphi Method Delphi method involves the participation of experts. It requires them to answer the questions or specially designed questionnaires. The topic of discussion or the nature of the project or process are identified and feedback is taken from the experts. With each answer, they provide the justification for their opinion and drive conclusions for the related issue (Chia-Chien & Brian, 2007). Thus in case of risk identification, they discuss associated risks, why they think it to probable and how to control it. Nominal group technique It is a group problem solving process that involves risk identification, solution of risk and appropriate decision making. It is the technique used to quickly identify and make decisions regarding the risk. It is a more controlled variant of brainstorming. However, being a group technique it encourages ideas from the individuals and thus on its basis prioritizes the risks. Analogy This method of risk identification requires a comparison. It is basically the evaluation of other similar projects and past trends. It can also involve the comparison of the financial statement, evaluation of the economic conditions, risks and issues faced by the competitors. However, all the comparative data must be referenced and integrated into the current circumstances (Muhammad & Alberto, 2013). Interviewing This is the feedback technique to gather the opinions regarding any specific issue or project. Both the internal and external stakeholders (employees) are interviewed and questions asked. These interviews and questions identify the associated risks that they find probable in their opinion (Heinz-Peter, 2010). Conclusion Risk identification is the important part of risk management process of the entity. Risk identification usually starts before the project initiates and continues through the life cycle of the project, as the probability and events of risks increase over the cycle. Risks and such events that can hamper the proceedings of the project are often found hard to be identified. However, multiple techniques can be used to identify the risks from multiple sources both intrinsic and extrinsic. Thus, allowing better planning and decision making for the organization. References Top of Form Top of Form Top of Form Top of Form Alexander, J. T., 2001. Corporate Risk Management: Real Options and Financial Hedging. Journal of Applied Corporate Finance. , 1(1), pp. 557-574. Ana-Maria, 2012. Modern Methods of Risk Identification in Risk Management. International Journal of Academic Research in Economics and Management Sciences, 1(6), pp. 67-71. Authority, E. F. S., 2010. Guidance on a harmonised framework for pest risk assessment and the identification and evaluation of pest risk management options by EFSA. EFSA Journal , 8(2), pp. 1-66. BARTON, L. (2001). Crisis in organizations II. Cincinnati, Ohio, South-Western College Pub. Chia-Chien, H. & Brian, A. S., 2007. Practical Assessment, Research & Evaluation. peer-reviewed electronic journal. , 12(10), pp. 1-8. COYLE, B. (2004). Risk awareness and corporate governance. Canterbury, Kent, U.K., Institute of Financial Services. 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