crisis management - dealing with risk
Risk management |
The identification and acceptance or offsetting of the risks threatening the profitability, or even the existence, of an organisation |
Contingency planning |
A plan for back up procedures, emergency response and post disaster recovery |
Crisis management |
The process of responding to an event that might threaten the operations, staff, customers, reputation or the legal and financial status of an organisation. The aim is to minimise the damage |
Risk
Risk is:
- The possibility of incurring misfortune or loss
- A threat that an event, action or failure to act will adversely affect an organisation’s ability to achieve its business objectives and execute its strategies effectively
- The chance of something happening that will have an impact on objectives
How risk differs from uncertainty
- Risk is defined as the chance or probability of danger, loss, injury or other adverse consequence
- Uncertainty is “not knowing (or not known), unreliable, changeable or erratic”. The result could be adverse
The difference is that:
- In the case of risk, a measure of probability can be attached to the various outcomes
- In the case of uncertainty, the probabilities of an event happening are too vague to quantify
Options for dealing with risk
- Ignore it - adopt a wait and see approach
- Avoid or reduce risk - reduce probability of risk
- Reduce or limit the consequences
- Share or deflect the risk e.g. by insurance
- Make contingency plans - prepare for it
- Adapt in order to maintain performance
- Treat it as an opportunity- if it affects competitors, then flexibility leads to competitive advantage
- Move to another environment
[adapted from D. Waters, Operations Strategy]
Risk management
Risk management involves:
- The identification of where and how things can and might go wrong
- Appreciating the extent of any downside if things go wrong
- Devising plans to cope with the threats
- Putting in place strategies to deal with the risks either before or after their occurrence
Key elements of risk management
- An on-going process for identifying, evaluating and managing significant risk
- Annual process for reviewing the effectiveness of the system of internal control
- A process to deal with the internal control aspects of an significant problems
- An embedded system in all the activities of the organisation and forms part of its culture
- A system for responding quickly to evolving risks
- Procedures for reporting any significant control failings to appropriate levels of management
Probability-impact matrix
Risk-performance trade off
Minimising the risk
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