Risk management
Purpose of this module
The purpose of this module is to provide you with an understanding of and insight into the management of risk exposures as part of integrated risk management.
Learning outcomes and objectives
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The aim of this module is to provide you with the necessary information and activities to enable you to: |
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3. Manage risk exposures as part of integrated risk management by: |
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3.1 Interpreting risk management. 3.2 Interpreting risk management decision criteria. 3.3 Interpreting the process of managing risk. |
Risk management
Introduction
Risk management is fast becoming one of the vital functions within organisations of today. It encompasses occupational health and safety, fire protection and prevention and several other disciplines, e.g. security. There is a growing understanding and acceptance that there are principles that are common to all these disciplines – managing risk and reducing losses. In fact, it has been said that risk management is one of the few remaining areas of management with major cost reduction potential.
The level of risk varies from industry to industry where some industries have extreme risk exposures while others have lesser exposures. The nuclear industry has significant hazards which must be understood and controlled while the risks associated with this technology have to be properly evaluated and stringent control measures put in place. The primary concern should be for the safety of employees and the public at large and the environment. Legislation and standards are paramount in governing safety and the associated risks. Industrial disasters in recent times have necessitated the development of international standards and risk management systems to enable better control and effective management of potential loss associated with these risks.
Hence, there is a need for a structured approach towards managing risk, as resources have been allocated in the past for the reduction of injuries and other forms of loss, without always first establishing the level of risk involved – often resulting in either inadequate control measures or ‘overkill’ – sometimes literally wasting money on safety.
Motivation for applying risk management
The biggest motivation for applying risk management lies in the financial benefits – reducing losses to improve the profitability of the organisation. In the process, a host of other benefits are gained for the organisation and its employees – including a reduction of the number of injuries – since causes for different types of loss are usually the same.
EXAMPLE
If a transformer is not maintained properly and as a result it explodes due to a short circuit, it can result in injuries to personnel, fire and damage to nearby equipment, substandard quality of product that may still be in the process, environmental impact / oil pollution of the soil, etc.
It can therefore be said that, by taking better care of our business we are taking better care of our employees. This explains why progressive organisations have integrated their safety (covering not only occupational injuries and diseases, but also damage to property, fire protection and prevention, etc.), quality assurance and environmental management systems.
At this point it is important to look at some basic functional definitions:
Term
Definition
Loss
Avoidable waste of any resource.
Control
Compliance with standards or legislation.
Risk
Assessment of the potential severity of loss along with the probability and exposure of a hazard.
Risk analysis
Assessment of the potential severity of loss along with the probability and exposure of a hazard.
Hazard
A condition or practice with a potential for loss.
Safety
Control of accidental loss.
Occupational health
Control of work-related illness.
Environmental protection
Control of harm or damage to anything (living and non-living) in the environment.
Risk control
Anything done to reduce loss from the business. It includes:
- The elimination or reduction of loss exposures.
- The minimisation of loss when loss-producing events occur.
The termination or avoidance of risk.
Risk management
A managerial function, aimed at protecting the organisation, its resources, and profits against the adverse consequences of exposure to risk, by reducing the frequency of occurrence and the consequence of the exposure.
Quality assurance
All the planned and systematic activities implemented within the quality system and demonstrated as needed to provide adequate confidence that an entity will fulfil the requirements for quality.
Quality control
Operational techniques and activities that are used to fulfil the requirements for quality.
Speculative risk
A chance of loss or gain e.g. lottery, entrepreneurial risk by businessman, horse racing etc.
Pure risk
Results in the maintenance of the status quo, or in loss to the individual or organisation e.g. fire, theft, fraud and injury etc. (no chance of making a profit).