Strategic Risk Management - Risk Context and Identification, Evaluating and Treatment the Risk - Coursework Example

Running Head: Strategic Risk Management Name Course Lecturer Date Strategic Risk Management Risk Risk is the uncertainty and untapped opportunity embedded in the organisational intent and how well they are implemented. Also, risk is the blend of the likelihood of an event happening and its consequences. The consequences of an event happening can range from positive to negative (uncertainties or opportunities). Every organisation has objectives; the objectives are classified as operational, tactical or strategic. Risk is anything that makes achieving these objectives uncertain. As the environment continues to become increasingly unpredictable and volatile, uncertainty in a achieving organisational objectives become greater (Dekker, 2002). As such, an organisation must find the most effective methods to mitigate and respond to such uncertainties so as not to hamper achieving organisational objectives. Risk Management Risk management is the systematic process of identifying, understanding, examining and addressing risks in order to maximise the likelihood of achieving objectives as well as ensuring that an organisation, employees, the community are sustainable (Dekker, 2006). Importantly, risk management exploits opportunities that come with uncertainties; this allows an organisation to have a new dimension of possibilities. Notably, risk management needs an informed identification, understanding of the relevant risks, evaluation of their relative priority and a rigorous method to controlling and monitoring them. Risk management is a process, the risks does not stop coming until the objectives are achieved. Risk management must be proportionate to the nature and size of the organisation. Risk management is an essential aspect of achieving objectives both at departmental levels and organisational levels. There should be well established mechanism of approaching risks well before they happen. They should be set when coming up with objectives; this preparedness helps an organisation to avoid suffering huge losses in case the risks occur (Bucher, 2008). Risk management is one of the integral activities of management, helps the management to make informed decision. The management of risk has greatest impact on the ability of an organisation to realise its objectives. Risk perception is subjective evaluation of the likelihood of a specified hazard occurring as well as how an organisation or a person is concerned with the consequences. Risk perception includes assessment of the likelihood and consequences of negative outcomes. Perception of risk goes beyond an organisation; it is a cultural and social construct reflecting examination that various people make about the severity and traits of a given risk. Socio-technical concept of risk focuses on likelihood of hazards and the magnitude of specific consequences. Socio-technical concepts of risk such as actuarial approach, epidemiological approach, toxicological approach and probabilistic approach explore the likelihood and magnitude of hazards happening. Risk perception, the socio-technical concepts of risk and human error work in a coordinated manner in an organisational process, behaviour and systems to effectively minimise risk and prevent hazards. They determine the probability of risks and hazards happening, their magnitude and extent. They then help to draw strategic plans to effectively mitigate and minimise their impacts. The report systematically indicates how they minimise risks and hazards. Strategic Risk Management This is the management’s response to the uncertainties and or opportunities. It includes a strong understanding of the organisations strategy, the risks in adopting the strategy as well as the risks in implementing the strategy. Strategic risk management helps an organisation to formulate viable risk mitigation. Managing risk strategically is a touchstone for the most successful organizations. Conversely, in the current risk filled environment, it becomes hard for management to have confidence that their laid down plans and strategies will work as expected (Cacciabue, 2004). This makes strategic risk management a ‘must do” for any organisation if it is to be successful. Significantly, strategic risk management does not only provide strategic ways of mitigating risks but also it potentially identifies situations in which risks can be opportunities and competitive edge. This indicates that risks are not only a threat to achieving organisational objectives or strategic plans of an organisation but they can also be opportunities disguised as risk as Chauvin, Hermand & Mullet (2007) asserts. This asserts the importance of identifying and analysing risks well before taking action. Seizing opportunities coming with risks can be a very effective competitive edge; this enables an organization to better its performance in achieving objectives as well as greater resilience in the uncertain setting. There are several steps in strategic risk management, these steps are; Risk Context This is identifying the situation of the risk. This involves identifying whether the risk is internal or external. This lays the starting point in addressing the risk. Notably, this requires proper analysis in order to establish the scope and the extent of risk (Janssens & Brett, 2006). Risk Identification This is the stage that an organisation recognises uncovers and describes the risk; they recognise that the risk may affect the success of the organisation in achieving objectives. The hazards are identified as well. Organisation applies various techniques to identify risks. Moreover, it is at this stage that an organisation starts to prepare on how to address the risk identified. Various personnel and departments in an organisation are contacted and made aware of the risks (Earley & Ang, 2003). Analysis of Risk Once the risk or risks have been identified, the persons responsible to address the risk analyse the risk ion detail. They determine the probability of the risks occurring; they also determine the consequences of each risk and how they affect the outcomes. The team develops an understanding of the nature of the risks. Importantly, they determine the potential of the risks to affect the organizations goals and objectives (Byrnes, Miller & Schafer, 1999). Evaluating the Risk This is examining the magnitude of the risks; this combines the probability and consequences of the risks. The team responsible makes decision about whether the risks are acceptable to warrant treatment depending on their nature and extent. The risks are also ranked according to their magnitude. Risk Treatment This stage is very important; it involves evaluating the risks according to their ranking. Plan is set out to modify or treat the risks in order to achieve acceptable risk levels. To reduce the likelihood of negative effects and impacts of risks, risk mitigation strategies are put in place, these involve preventive and contingency plans. The risks are addressed from the highest ranked to the lowest until all the risks are under control. Mitigation strategies are applied in this stage, action plans are taken to contain the risks. This helps to reduce or to eliminate the risk completely. The application of strategies does not stop after applying the strategies, they continue even after the risks have been reduced (Kuhberger, 2002). Communication and Consult This step involves communicating the risk action plan as well as their associated status reporting. This is very important as the risk may affect several departments of an organisation. As such, the departments must be kept abreast of the progress in addressing the risks. The departments get to know how the risk would have affected their work as well as the current status now that the risk has been mitigated. Communication also involves creating ongoing awareness as well as the effectiveness of the strategies and actions taken to contain or eliminate the risks. The purpose of communication and consult is to keep an eye on the risks, this helps in deal with any new risks that may arise (Bucher, 2008). Monitoring and Review This involves taking the risks register to monitor and review the risks. The team responsible and the organisation at large keep an eye on the risks, this helps to identify if there are changes as well as to identify if impacts have decreased or increased. Markedly, an organisation identifies if there are nay risks arising out of the risks being mitigated or new risks. An organisation puts a framework around the uncertainties and then de-risks the objectives. It also involves formalizing the lessons learned in addressing the risks; this also involves understanding the tools used to address the risk. The knowledge gained is shared across the organisation (Dekker, 2002). Recommendations to Mitigate Risks The aims of risk planning and mitigation are to explore response strategies. It also aims to identify to identify the persons to take responsibilities for the various response strategies; this ensures that each risk response has a person responsible. The human factor in risk response strategies is very essential. One factor to take in to account is that any response can be rendered hazardous when there is involvement of personnel with inappropriate disposition towards risk (Kuhberger, 2002). Persons have different orientation towards risk; some people are timid, fearful and anxious nature towards. Other people are adventurous, oblivious to hazards and impulsive. These different orientations have effects in the way persons approach and address risks. As such, it is important to assign the right persons to address and take responsibilities. Secondly, it is important to recognise that risk is an ever present and inevitable element as far as objectives or goals are there. This means that an organisation should have workable risk mitigation strategies in place right after setting objectives and goals (Kubicek, Ramudu & Fish, 2013). It is very important that an organisation have a continuous risk planning. The plan should be incorporated in the implementation plan. In addition, it is important to collaborate with the personnel at operational level or users; this would help to create a collective understanding of risk and its consequences. Most risks start or emanate at the operational level. The operational level personnel may have a greater understanding of the situation. As such, they may help a lot in creating a collective understanding of risk (Chauvin et al., 2007). Eventually, this helps to come up with effective strategies to mitigate the risks. For this reason, it is essential to understand the operational users and their needs. Conclusion Essentially, strategic risk management is an essential function in an organisation. Every organisation should make it a continuous process. Risk mitigation increases the chances of realising successful objectives. Following the above steps would help an organisation to come up with effective strategies for managing risks. Additionally, adhering to the recommendations above would help an organisation to be always prepared for risks. Significantly, it would help an organisation to approach risk response with the right persons in the right way (Earley & Ang, 2003). References Bucher, R. D. (2008). Building Cultural Intelligence (CQ) Nine Megaskills. Columbus, Ohio: Pearson Prentice Hall. Byrnes, J. P., Miller, D. C., & Schafer, W, D, (1999). Gender Differences in Risk Taking: A Meta-Analysis. Psychological Bulletin, 125(3), 364-383. Cacciabue, P. C. (2004). Guide to applying Human Factors methods - Human error and accident management in safety critical systems London: Springer-Verlag. Chauvin, B., Hermand, D., & Mullet, E, (2007). Risk Perception and Personality Facets. Risk Analysis, 27(1), 171-185. Dekker, S. (2002). The field guide to human error investigations. Aldershot: Ashgate. Dekker, S. (2006). The field guide to understanding human error. Aldershot: Ashgate. Earley, P. C., & Ang, S. (2003). Cultural Intelligence: Individual interactions across cultures. Stanford: Stanford Business Books. Janssens, M., & Brett, J, M, (2006). Cultural Intelligence in Global Teams: Group & Organization Management, 31(1), 124-153. Kubicek, A, Ramudu, B, & Fish, A, (2013). Perceiving safety and risk in culturally diverse organisations. International Journal of Risk Management (15), 199-223. Kuhberger, A. (2002). The Rationality of Risky Decisions: Theory & Psychology, 12(4), 427-452. Read More