MOR (Management of Risk)
MOR (Management of Risk)
Risk management Management of Risk is focused on anticipating what might not go to plan and putting in place actions to reduce uncertainty to a tolerable level. Risk can be perceived either positively (upside opportunities) or negatively (downside threats). A risk is the potential of a situation or event to impact on the achievement of specific objectives Working with the risk owner, the project professional ensures that risks are clearly identified before moving on to the risk analysis step of the risk management process. The project risk MOR process reflects the dynamic nature of project work, capturing and managing emerging risks and reflecting new knowledge in existing risk analyses. A risk register is used to document risks, analysis and responses, and to assign clear ownership of actions.
Why is risk management important?
Risk management is the process of identifying, assessing, and controlling financial, legal, strategic, and security risks to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters.
If an unforeseen event catches your organization unaware, the impact could be minor, such as a small impact on your overhead costs. In a worst-case scenario, though, it could be catastrophic and have serious ramifications, such as a significant financial burden or even the closure of your business.
To reduce risk, an organization needs to apply resources to minimize, monitor, and control the impact of negative events while maximizing positive events. A consistent, systemic, and integrated approach to risk management can help determine how best to identify, manage and mitigate significant risks.
Risk response strategies and treatment
There are five commonly accepted strategies for addressing risk. The process begins with an initial consideration of risk avoidance and then proceeds to three additional avenues of addressing risk (transfer, spreading, and reduction). Ideally, these three avenues are employed in concert with one another as part of a comprehensive strategy. Some residual risks may remain.
What are the most common responses to risk?
Avoidance is a method for mitigating risk by not participating in activities that may negatively affect the organization. Not making an investment or starting a product line are examples of such activities as they avoid the risk of loss.
This method of risk management attempts to minimize the loss, rather than completely eliminate it. While accepting the risk, it stays focused on keeping the loss contained and preventing it from spreading. An example of this in health insurance is preventative care.
When risks are shared, the possibility of loss is transferred from the individual to the group. A corporation is a good example of risk sharing — a number of investors pool their capital and each only bears a portion of the risk that the enterprise may fail.
Contractually transferring risk to a third party, such as insurance to cover possible property damage or injury shifts the risks associated with the property from the owner to the insurance company.
Risk acceptance and retention
After all risk sharing, risk transfer, and risk reduction measures have been implemented, some risks will remain since it is virtually impossible to eliminate all risks (except through risk avoidance). This is called residual risk.
Limitations and risk management standards
Risk management standards set out a specific set of strategic processes that start with the objectives of an organization and intend to identify risks and promote the mitigation of risks through best practices. Standards are often designed by agencies who are working together to promote common goals, and to help to ensure high-quality risk management processes. For example, the ISO 31 000 standard on risk management is an international standard that provides principles and guidelines for effective risk management.
While adopting a risk management standard has its advantages, it is not without challenges. The new standard might not easily fit into what you are doing already, so you could have to introduce new ways of working. And the standards might need customizing to your industry or business.