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Q 1. Describe the five phases of risk management process

Generally, a risk management process involves following five phases that are depicted in Figure 1. This Risk management process shows you all the steps you need to take to implement Risk Management in your organisation.
Using this risk management process to monitor and control risk, you can ensure you meet your team objectives.

1. Risk Identification: Risk Identification is a process of identifying the risks associated with your business activities – in a methodical manner. Risk identification starts with the problem source or with the problem itself. So after establishing the context the next step is to identify the potential risks.
Analysis of Source: The target of risk management is the internal or external risk sources in the system. The stakeholders in a project, the employees in a company or the weather in the airport may be the best examples for risk sources.
Analysis of Problem: Risks are deviation from assumption, it is essential to identify risks related to threats. The best examples are the accident and casualty threat, private information abuse, or money losing threat. The government legislative bodies, shareholders, and customers are few threats with various entities.
Culture, industry practice, and compliance depend on the chosen method for identification of risks. There are number of ways by which you can go about identifying risks:
1. Risk identification by Objective-based: The event which prevents you from achieving an objective completely or partially is identified as risk and every project and organisations have these objectives.
2. Risk identification by Scenario-based: The scenarios are usually the ways to achieve an objective or to analyse the interaction of forces. Any scenario that triggers an undesired event is identified as risk.
3. Risk identification by Taxonomy-based: This risk identification is a breakdown of possible risk sources.
4. Risk identification by Common-risk checking: Many industries list out their known risks and share them. Each risk in the list can be checked for application to a particular situation.
5. Risk identification by Risk charting: This risk identification is done by listing Resources at risks and combining the above approaches. In this method of identification you can start with threat and identify the resource that will be affected or you can examine the consequences and then determine the combination of threat and resource.
After the risk identification, it becomes essential to assess the risks so that the right actions can be planned for the same. In the case of value of building loss or in the case of probability of an unlikely event occurring, it is easier to arrive at these quantities.
But statistical information is not accessible in all kinds of risks that might have occurred in the past, thus project managers are faced with this difficulty in assessing risks. To evaluate the rigorousness of the impact of risk is often difficult for immaterial assets. However, assessment of risk must produce information such that the information can be used by the management in an organisation to identify risks and prioritise risk management decisions. There are several theories for quantifying risk attempts. Out of the many different risk formulas that exist, the most accepted formula for quantification of risk is:
Risk = Rate of Occurrence x Impact of the event
The financial benefits of risk management are independent of the formula used, although they are more dependent on frequency and how the risk assessment is executed.

2. Risk Probability: Assessing the probability of the occurrence of the risk is known as Risk Probability. The first problem in assessing the probability of project risks is the term itself. “Probability” has an accurate numerical meaning. The best method for assigning probability is measuring the relative frequency or likelihood of occurrence of an event, where the values lie between impossibility (zero) and certainty (one). The uncertainty dimension such as “frequency”, “likelihood” or “chance” is the major component of risk probability.

3. Risk Response: Being prepared on how to respond to the occurrences of risk is called as Risk Response. There are a few things you can do about a response to any risk, and the strategies are:
Avoidance of Risk: The risk has to be avoided, do something to remove the risk. For example use another supplier. Avoiding risks also means loss in the potential gain for the organisations that retain or accept the risks which have been allowed. Possibility of earning profits is also avoided by not entering a business that may avoid the risk loss.
Transfer of Risk: Risk has to be transferred, someone will be responsible. Possibly a vendor will be made responsible for a particularly risky part of project, a third party by outsourcing or an insurance company. The original risks are likely to still revert to the first party if the insurance company or contractor goes bankrupt or end-up in court. So practitioners and scholars alike, the insurance contract purchased is often called as a “risk transfer”
Mitigation of Risk: The risk has to be mitigated. You need to take measures to reduce the impact or chance for the risk to occur. If the risks are related to availability of   resources, make an agreement and sign-off for the available resource.
Prevention of Hazard: Prevention of risks in an emergency refers to the hazard prevention. Elimination of hazards is the most effective stage of hazard prevention. If this is too long, too costly, or impractical then the second stage is mitigation of hazards  which prevents hazards from occurring.
Reduction of Risk: This method involves the reduction of likelihood of the loss of occurrence, or the severity of the loss. For example, sprinklers are designed to put out a fire to reduce the risk of loss by fire. This is not suitable because of the greater loss by water damage. By developing and delivering software incrementally, the modern  software development methods reduce the risk.
Retention of Risk: Involved the acceptance of loss. True self insurance falls in this category. Strategy for small risk is viable in risk retention, in which the cost of against risk insuring is greater over time than the sustained total loss. By default, all risks are not transferred or avoided. This includes risks which are very large can either be feasible or insured.
A response in risk planning includes the approach and the strategy addressed by items. The actions include when it should be finished, who is going to do it, and what needs to be done.
4. Risk Measures: This is a process by which an organisation initiates measures to effectively deal with the consequences when the risk actually occurs. To understand this in a better way, you can use the two dimensional table given on page 8 wherein the risk is quantified. The impact and the probability of the risk must be evaluated in a simple scale of 1 to 4. The greater the number, the higher is the intensity and impact.
If the probability is more, and the impact is less, it is a medium risk. So, if impact is more, and probability is less, it is a high priority risk. Using this method, risk can be quantified to a certain extent.
5. Risk Tracking: Tracking and monitoring the effectiveness of your risk management approach is a very important process. To track risks, project managers should hold regular risk reviews to identify actions which are outstanding, probability of risks, and the impact of risk. This process helps in removing the risks that are no more valid and the new risks can be identified and added. This continuous monitoring of risks to determine any changes in its status, or if they turn into any issues is an essential part of risk
management process.
Any risk management process also requires running risk reviews regularly to identify and quantify risks. This enables you to track risks that have occurred and build mitigation plans thereby curbing their recurrence to the bare minimum. As a result the process of risk management will be useful in:
• Improving the decision-making, prioritisation, and planning.
• Helps you in allocating the capital and resources effectively.
• Anticipating what might have gone wrong and minimising the amount of fire-fighting that you may want to do.
• Preventing disaster and even serious financial loss in a difficult case scenario.
• Delivering your business plan on time and to budget it significantly improves the probability.


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