Risk management

Risk management is the identification, evaluation, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events[1] or to maximize the realization of opportunities.

Risks can come from various sources including uncertainty in financial markets, threats from project failures (at any phase in design, development, production, or sustainment life-cycles), legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. There are two types of events i.e. negative events can be classified as risks while positive events are classified as opportunities. Several risk management standards have been developed including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies, and ISO standards.[2][3] Methods, definitions and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety.

Strategies to manage threats (uncertainties with negative consequences) typically include avoiding the threat, reducing the negative effect or probability of the threat, transferring all or part of the threat to another party, and even retaining some or all of the potential or actual consequences of a particular threat, and the opposites for opportunities (uncertain future states with benefits).

Certain aspects of many of the risk management standards have come under criticism for having no measurable improvement on risk; whereas the confidence in estimates and decisions seem to increase.[1] For example, one study found that one in six IT projects were "black swans" with gigantic overruns (cost overruns averaged 200%, and schedule overruns 70%).[4]

ISS impact risk
Example of risk assessment: A NASA model showing areas at high risk from impact for the International Space Station

Introduction

A widely used vocabulary for risk management is defined by ISO Guide 73:2009, "Risk management. Vocabulary."[2]

In ideal risk management, a prioritization process is followed whereby the risks with the greatest loss (or impact) and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order. In practice the process of assessing overall risk can be difficult, and balancing resources used to mitigate between risks with a high probability of occurrence but lower loss versus a risk with high loss but lower probability of occurrence can often be mishandled.

Intangible risk management identifies a new type of a risk that has a 100% probability of occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient knowledge is applied to a situation, a knowledge risk materializes. Relationship risk appears when ineffective collaboration occurs. Process-engagement risk may be an issue when ineffective operational procedures are applied. These risks directly reduce the productivity of knowledge workers, decrease cost-effectiveness, profitability, service, quality, reputation, brand value, and earnings quality. Intangible risk management allows risk management to create immediate value from the identification and reduction of risks that reduce productivity.

Risk management also faces difficulties in allocating resources. This is the idea of opportunity cost. Resources spent on risk management could have been spent on more profitable activities. Again, ideal risk management minimizes spending (or manpower or other resources) and also minimizes the negative effects of risks.

According to the definition to the risk, the risk is the possibility that an event will occur and adversely affect the achievement of an objective. Therefore, risk itself has the uncertainty. Risk management such as COSO ERM, can help managers have a good control for their risk. Each company may have different internal control components, which leads to different outcomes. For example, the framework for ERM components includes Internal Environment, Objective Setting, Event Identification, Risk Assessment, Risk Response, Control Activities, Information and Communication, and Monitoring.

Method

For the most part, these methods consist of the following elements, performed, more or less, in the following order.

  1. identify, characterize threats
  2. assess the vulnerability of critical assets to specific threats
  3. determine the risk (i.e. the expected likelihood and consequences of specific types of attacks on specific assets)
  4. identify ways to reduce those risks
  5. prioritize risk reduction measures

Principles

The International Organization for Standardization (ISO) identifies the following principles of risk management:[5]

Risk management should:

  • create value – resources expended to mitigate risk should be less than the consequence of inaction
  • be an integral part of organizational processes
  • be part of decision making process
  • explicitly address uncertainty and assumptions
  • be a systematic and structured process
  • be based on the best available information
  • be tailorable
  • take human factors into account
  • be transparent and inclusive
  • be dynamic, iterative and responsive to change
  • be capable of continual improvement and enhancement
  • be continually or periodically re-assessed

Process

According to the standard ISO 31000 "Risk management – Principles and guidelines on implementation,"[3] the process of risk management consists of several steps as follows:

Establishing the context

This involves:

    • the social scope of risk management
    • the identity and objectives of stakeholders
    • the basis upon which risks will be evaluated, constraints.
  1. defining a framework for the activity and an agenda for identification
  2. developing an analysis of risks involved in the process
  3. mitigation or solution of risks using available technological, human and organizational resources

Identification

After establishing the context, the next step in the process of managing risk is to identify potential risks. Risks are about events that, when triggered, cause problems or benefits. Hence, risk identification can start with the source of our problems and those of our competitors (benefit), or with the problem itself.

  • Source analysis[6] – Risk sources may be internal or external to the system that is the target of risk management (use mitigation instead of management since by its own definition risk deals with factors of decision-making that cannot be managed).

Examples of risk sources are: stakeholders of a project, employees of a company or the weather over an airport.

  • Problem analysis – Risks are related to identified threats. For example: the threat of losing money, the threat of abuse of confidential information or the threat of human errors, accidents and casualties. The threats may exist with various entities, most important with shareholders, customers and legislative bodies such as the government.

When either source or problem is known, the events that a source may trigger or the events that can lead to a problem can be investigated. For example: stakeholders withdrawing during a project may endanger funding of the project; confidential information may be stolen by employees even within a closed network; lightning striking an aircraft during takeoff may make all people on board immediate casualties.

The chosen method of identifying risks may depend on culture, industry practice and compliance. The identification methods are formed by templates or the development of templates for identifying source, problem or event. Common risk identification methods are:

  • Objectives-based risk identification – Organizations and project teams have objectives. Any event that may endanger achieving an objective partly or completely is identified as risk.
  • Scenario-based risk identification – In scenario analysis different scenarios are created. The scenarios may be the alternative ways to achieve an objective, or an analysis of the interaction of forces in, for example, a market or battle. Any event that triggers an undesired scenario alternative is identified as risk – see Futures Studies for methodology used by Futurists.
  • Taxonomy-based risk identification – The taxonomy in taxonomy-based risk identification is a breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices, a questionnaire is compiled. The answers to the questions reveal risks.[7]
  • Common-risk checking[8] – In several industries, lists with known risks are available. Each risk in the list can be checked for application to a particular situation.[9]
  • Risk charting[10] – This method combines the above approaches by listing resources at risk, threats to those resources, modifying factors which may increase or decrease the risk and consequences it is wished to avoid. Creating a matrix under these headings enables a variety of approaches. One can begin with resources and consider the threats they are exposed to and the consequences of each. Alternatively one can start with the threats and examine which resources they would affect, or one can begin with the consequences and determine which combination of threats and resources would be involved to bring them about.

Assessment

Once risks have been identified, they must then be assessed as to their potential severity of impact (generally a negative impact, such as damage or loss) and to the probability of occurrence. These quantities can be either simple to measure, in the case of the value of a lost building, or impossible to know for sure in the case of an unlikely event, the probability of occurrence of which is unknown. Therefore, in the assessment process it is critical to make the best educated decisions in order to properly prioritize the implementation of the risk management plan.

Even a short-term positive improvement can have long-term negative impacts. Take the "turnpike" example. A highway is widened to allow more traffic. More traffic capacity leads to greater development in the areas surrounding the improved traffic capacity. Over time, traffic thereby increases to fill available capacity. Turnpikes thereby need to be expanded in a seemingly endless cycles. There are many other engineering examples where expanded capacity (to do any function) is soon filled by increased demand. Since expansion comes at a cost, the resulting growth could become unsustainable without forecasting and management.

The fundamental difficulty in risk assessment is determining the rate of occurrence since statistical information is not available on all kinds of past incidents and is particularly scanty in the case of catastrophic events, simply because of their infrequency. Furthermore, evaluating the severity of the consequences (impact) is often quite difficult for intangible assets. Asset valuation is another question that needs to be addressed. Thus, best educated opinions and available statistics are the primary sources of information. Nevertheless, risk assessment should produce such information for senior executives of the organization that the primary risks are easy to understand and that the risk management decisions may be prioritized within overall company goals. Thus, there have been several theories and attempts to quantify risks. Numerous different risk formulae exist, but perhaps the most widely accepted formula for risk quantification is: "Rate (or probability) of occurrence multiplied by the impact of the event equals risk magnitude."

Risk options

Risk mitigation measures are usually formulated according to one or more of the following major risk options, which are:

  1. Design a new business process with adequate built-in risk control and containment measures from the start.
  2. Periodically re-assess risks that are accepted in ongoing processes as a normal feature of business operations and modify mitigation measures.
  3. Transfer risks to an external agency (e.g. an insurance company)
  4. Avoid risks altogether (e.g. by closing down a particular high-risk business area)

Later research[11] has shown that the financial benefits of risk management are less dependent on the formula used but are more dependent on the frequency and how risk assessment is performed.

In business it is imperative to be able to present the findings of risk assessments in financial, market, or schedule terms. Robert Courtney Jr. (IBM, 1970) proposed a formula for presenting risks in financial terms. The Courtney formula was accepted as the official risk analysis method for the US governmental agencies. The formula proposes calculation of ALE (annualized loss expectancy) and compares the expected loss value to the security control implementation costs (cost-benefit analysis).

Potential risk treatments

Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories:[12]

  • Avoidance (eliminate, withdraw from or not become involved)
  • Reduction (optimize – mitigate)
  • Sharing (transfer – outsource or insure)
  • Retention (accept and budget)

Ideal use of these risk control strategies may not be possible. Some of them may involve trade-offs that are not acceptable to the organization or person making the risk management decisions. Another source, from the US Department of Defense (see link), Defense Acquisition University, calls these categories ACAT, for Avoid, Control, Accept, or Transfer. This use of the ACAT acronym is reminiscent of another ACAT (for Acquisition Category) used in US Defense industry procurements, in which Risk Management figures prominently in decision making and planning.

Risk avoidance

This includes not performing an activity that could carry risk. An example would be not buying a property or business in order to not take on the legal liability that comes with it. Another would be not flying in order not to take the risk that the airplane were to be hijacked. Avoidance may seem the answer to all risks, but avoiding risks also means losing out on the potential gain that accepting (retaining) the risk may have allowed. Not entering a business to avoid the risk of loss also avoids the possibility of earning profits. Increasing risk regulation in hospitals has led to avoidance of treating higher risk conditions, in favor of patients presenting with lower risk.[13]

Risk reduction

Risk reduction or "optimization" involves reducing the severity of the loss or the likelihood of the loss from occurring. For example, sprinklers are designed to put out a fire to reduce the risk of loss by fire. This method may cause a greater loss by water damage and therefore may not be suitable. Halon fire suppression systems may mitigate that risk, but the cost may be prohibitive as a strategy.

Acknowledging that risks can be positive or negative, optimizing risks means finding a balance between negative risk and the benefit of the operation or activity; and between risk reduction and effort applied. By an offshore drilling contractor effectively applying Health, Safety and Environment (HSE) management in its organization, it can optimize risk to achieve levels of residual risk that are tolerable.[14]

Modern software development methodologies reduce risk by developing and delivering software incrementally. Early methodologies suffered from the fact that they only delivered software in the final phase of development; any problems encountered in earlier phases meant costly rework and often jeopardized the whole project. By developing in iterations, software projects can limit effort wasted to a single iteration.

Outsourcing could be an example of risk sharing strategy if the outsourcer can demonstrate higher capability at managing or reducing risks.[15] For example, a company may outsource only its software development, the manufacturing of hard goods, or customer support needs to another company, while handling the business management itself. This way, the company can concentrate more on business development without having to worry as much about the manufacturing process, managing the development team, or finding a physical location for a center.

Risk sharing

Briefly defined as "sharing with another party the burden of loss or the benefit of gain, from a risk, and the measures to reduce a risk."

The term of 'risk transfer' is often used in place of risk sharing in the mistaken belief that you can transfer a risk to a third party through insurance or outsourcing. In practice if the insurance company or contractor go bankrupt or end up in court, the original risk is likely to still revert to the first party. As such in the terminology of practitioners and scholars alike, the purchase of an insurance contract is often described as a "transfer of risk." However, technically speaking, the buyer of the contract generally retains legal responsibility for the losses "transferred", meaning that insurance may be described more accurately as a post-event compensatory mechanism. For example, a personal injuries insurance policy does not transfer the risk of a car accident to the insurance company. The risk still lies with the policy holder namely the person who has been in the accident. The insurance policy simply provides that if an accident (the event) occurs involving the policy holder then some compensation may be payable to the policy holder that is commensurate with the suffering/damage.

Some ways of managing risk fall into multiple categories. Risk retention pools are technically retaining the risk for the group, but spreading it over the whole group involves transfer among individual members of the group. This is different from traditional insurance, in that no premium is exchanged between members of the group up front, but instead losses are assessed to all members of the group.

Risk retention

Risk retention involves accepting the loss, or benefit of gain, from a risk when the incident occurs. True self-insurance falls in this category. Risk retention is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained. All risks that are not avoided or transferred are retained by default. This includes risks that are so large or catastrophic that either they cannot be insured against or the premiums would be infeasible. War is an example since most property and risks are not insured against war, so the loss attributed to war is retained by the insured. Also any amounts of potential loss (risk) over the amount insured is retained risk. This may also be acceptable if the chance of a very large loss is small or if the cost to insure for greater coverage amounts is so great that it would hinder the goals of the organization too much.

Risk management plan

Select appropriate controls or countermeasures to mitigate each risk. Risk mitigation needs to be approved by the appropriate level of management. For instance, a risk concerning the image of the organization should have top management decision behind it whereas IT management would have the authority to decide on computer virus risks.

The risk management plan should propose applicable and effective security controls for managing the risks. For example, an observed high risk of computer viruses could be mitigated by acquiring and implementing antivirus software. A good risk management plan should contain a schedule for control implementation and responsible persons for those actions.

According to ISO/IEC 27001, the stage immediately after completion of the risk assessment phase consists of preparing a Risk Treatment Plan, which should document the decisions about how each of the identified risks should be handled. Mitigation of risks often means selection of security controls, which should be documented in a Statement of Applicability, which identifies which particular control objectives and controls from the standard have been selected, and why.

Implementation

Implementation follows all of the planned methods for mitigating the effect of the risks. Purchase insurance policies for the risks that it has been decided to transferred to an insurer, avoid all risks that can be avoided without sacrificing the entity's goals, reduce others, and retain the rest.

Review and evaluation of the plan

Initial risk management plans will never be perfect. Practice, experience, and actual loss results will necessitate changes in the plan and contribute information to allow possible different decisions to be made in dealing with the risks being faced.

Risk analysis results and management plans should be updated periodically. There are two primary reasons for this:

  1. to evaluate whether the previously selected security controls are still applicable and effective
  2. to evaluate the possible risk level changes in the business environment. For example, information risks are a good example of rapidly changing business environment.

Limitations

Prioritizing the risk management processes too highly could keep an organization from ever completing a project or even getting started. This is especially true if other work is suspended until the risk management process is considered complete.

It is also important to keep in mind the distinction between risk and uncertainty. Risk can be measured by impacts × probability.

If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not likely to occur. Spending too much time assessing and managing unlikely risks can divert resources that could be used more profitably. Unlikely events do occur but if the risk is unlikely enough to occur it may be better to simply retain the risk and deal with the result if the loss does in fact occur. Qualitative risk assessment is subjective and lacks consistency. The primary justification for a formal risk assessment process is legal and bureaucratic.

Areas

As applied to corporate finance, risk management is the technique for measuring, monitoring and controlling the financial or operational risk on a firm's balance sheet, a traditional measure is the value at risk (VaR), but there also other measures like profit at risk (PaR) or margin at risk. The Basel II framework breaks risks into market risk (price risk), credit risk and operational risk and also specifies methods for calculating capital requirements for each of these components.

In Information Technology, Risk management includes "Incident Handling", an action plan for dealing with intrusions, cyber-theft, denial of service, fire, floods, and other security-related events. According to the SANS Institute,[16] it is a six step process: Preparation, Identification, Containment, Eradication, Recovery, and Lessons Learned.

Enterprise

In enterprise risk management, a risk is defined as a possible event or circumstance that can have negative influences on the enterprise in question. Its impact can be on the very existence, the resources (human and capital), the products and services, or the customers of the enterprise, as well as external impacts on society, markets, or the environment. In a financial institution, enterprise risk management is normally thought of as the combination of credit risk, interest rate risk or asset liability management, liquidity risk, market risk, and operational risk.

In the more general case, every probable risk can have a pre-formulated plan to deal with its possible consequences (to ensure contingency if the risk becomes a liability).

From the information above and the average cost per employee over time, or cost accrual ratio, a project manager can estimate:

  • the cost associated with the risk if it arises, estimated by multiplying employee costs per unit time by the estimated time lost (cost impact, C where C = cost accrual ratio * S).
  • the probable increase in time associated with a risk (schedule variance due to risk, Rs where Rs = P * S):
    • Sorting on this value puts the highest risks to the schedule first. This is intended to cause the greatest risks to the project to be attempted first so that risk is minimized as quickly as possible.
    • This is slightly misleading as schedule variances with a large P and small S and vice versa are not equivalent. (The risk of the RMS Titanic sinking vs. the passengers' meals being served at slightly the wrong time).
  • the probable increase in cost associated with a risk (cost variance due to risk, Rc where Rc = P*C = P*CAR*S = P*S*CAR)
    • sorting on this value puts the highest risks to the budget first.
    • see concerns about schedule variance as this is a function of it, as illustrated in the equation above.

Risk in a project or process can be due either to Special Cause Variation or Common Cause Variation and requires appropriate treatment. That is to re-iterate the concern about extremal cases not being equivalent in the list immediately above.

Enterprise Security

ESRM is a security program management approach that links security activities to an enterprise's mission and business goals through risk management methods. The security leader's role in ESRM is to manage risks of harm to enterprise assets in partnership with the business leaders whose assets are exposed to those risks. ESRM involves educating business leaders on the realistic impacts of identified risks, presenting potential strategies to mitigate those impacts, then enacting the option chosen by the business in line with accepted levels of business risk tolerance[17]

Medical device

For medical devices, risk management is a process for identifying, evaluating and mitigating risks associated with harm to people and damage to property or the environment. Risk management is an integral part of medical device design and development, production processes and evaluation of field experience, and is applicable to all types of medical devices. The evidence of its application is required by most regulatory bodies such as the US FDA. The management of risks for medical devices is described by the International Organization for Standardization (ISO) in ISO 14971:2007, Medical Devices—The application of risk management to medical devices, a product safety standard. The standard provides a process framework and associated requirements for management responsibilities, risk analysis and evaluation, risk controls and lifecycle risk management.

The European version of the risk management standard was updated in 2009 and again in 2012 to refer to the Medical Devices Directive (MDD) and Active Implantable Medical Device Directive (AIMDD) revision in 2007, as well as the In Vitro Medical Device Directive (IVDD). The requirements of EN 14971:2012 are nearly identical to ISO 14971:2007. The differences include three "(informative)" Z Annexes that refer to the new MDD, AIMDD, and IVDD. These annexes indicate content deviations that include the requirement for risks to be reduced as far as possible, and the requirement that risks be mitigated by design and not by labeling on the medical device (i.e., labeling can no longer be used to mitigate risk).

Typical risk analysis and evaluation techniques adopted by the medical device industry include hazard analysis, fault tree analysis (FTA), failure mode and effects analysis (FMEA), hazard and operability study (HAZOP), and risk traceability analysis for ensuring risk controls are implemented and effective (i.e. tracking risks identified to product requirements, design specifications, verification and validation results etc.). FTA analysis requires diagramming software. FMEA analysis can be done using a spreadsheet program. There are also integrated medical device risk management solutions.

Through a draft guidance, the FDA has introduced another method named "Safety Assurance Case" for medical device safety assurance analysis. The safety assurance case is structured argument reasoning about systems appropriate for scientists and engineers, supported by a body of evidence, that provides a compelling, comprehensible and valid case that a system is safe for a given application in a given environment. With the guidance, a safety assurance case is expected for safety critical devices (e.g. infusion devices) as part of the pre-market clearance submission, e.g. 510(k). In 2013, the FDA introduced another draft guidance expecting medical device manufacturers to submit cybersecurity risk analysis information.

Project management

Project risk management must be considered at the different phases of acquisition. In the beginning of a project, the advancement of technical developments, or threats presented by a competitor's projects, may cause a risk or threat assessment and subsequent evaluation of alternatives (see Analysis of Alternatives). Once a decision is made, and the project begun, more familiar project management applications can be used:[18][19][20]

SimulTrain12RiskRegister
An example of the Risk Register for a project that includes 4 steps: Identify, Analyze, Plan Response, Monitor and Control.[21]
  • Planning how risk will be managed in the particular project. Plans should include risk management tasks, responsibilities, activities and budget.
  • Assigning a risk officer – a team member other than a project manager who is responsible for foreseeing potential project problems. Typical characteristic of risk officer is a healthy skepticism.
  • Maintaining live project risk database. Each risk should have the following attributes: opening date, title, short description, probability and importance. Optionally a risk may have an assigned person responsible for its resolution and a date by which the risk must be resolved.
  • Creating anonymous risk reporting channel. Each team member should have the possibility to report risks that he/she foresees in the project.
  • Preparing mitigation plans for risks that are chosen to be mitigated. The purpose of the mitigation plan is to describe how this particular risk will be handled – what, when, by whom and how will it be done to avoid it or minimize consequences if it becomes a liability.
  • Summarizing planned and faced risks, effectiveness of mitigation activities, and effort spent for the risk management.

Megaprojects (infrastructure)

Megaprojects (sometimes also called "major programs") are large-scale investment projects, typically costing more than $1 billion per project. Megaprojects include major bridges, tunnels, highways, railways, airports, seaports, power plants, dams, wastewater projects, coastal flood protection schemes, oil and natural gas extraction projects, public buildings, information technology systems, aerospace projects, and defense systems. Megaprojects have been shown to be particularly risky in terms of finance, safety, and social and environmental impacts.[22] Risk management is therefore particularly pertinent for megaprojects and special methods and special education have been developed for such risk management.[23]

Natural disasters

It is important to assess risk in regard to natural disasters like floods, earthquakes, and so on. Outcomes of natural disaster risk assessment are valuable when considering future repair costs, business interruption losses and other downtime, effects on the environment, insurance costs, and the proposed costs of reducing the risk.[24][25] The Sendai Framework for Disaster Risk Reduction is a 2015 international accord that has set goals and targets for disaster risk reduction in response to natural disasters.[26] There are regular International Disaster and Risk Conferences in Davos to deal with integral risk management.

Wilderness

The management of risks to persons and property in wilderness and remote natural areas has developed with increases in outdoor recreation participation and decreased social tolerance for loss. Organizations providing commercial wilderness experiences can now align with national and international consensus standards for training and equipment such as ANSI/NASBLA 101-2017 (boating)[27], UIAA 152 (ice climbing tools)[28], and European Norm 13089:2015 + A1:2015 (mountaineering equipment)[29][30]. The Association for Experiential Education offers accreditation for wilderness adventure programs[31]. The Wilderness Risk Management Conference provides access to best practices, and specialist organizations provide wilderness risk management consulting and training[32][33][34][35].

Information technology

IT risk is a risk related to information technology. This is a relatively new term due to an increasing awareness that information security is simply one facet of a multitude of risks that are relevant to IT and the real world processes it supports. "Cybersecurity is tied closely to the advancement of technology. It lags only long enough for incentives like black markets to evolve and new exploits to be discovered. There is no end in sight for the advancement of technology, so we can expect the same from cybersecurity."[36]

ISACA's Risk IT framework ties IT risk to enterprise risk management.

Duty of Care Risk Analysis (DoCRA)[37] evaluates risks and their safeguards and considers the interests of all parties potentially affected by those risks.

CIS RAM provides a method to design and evaluate the implementation of the CIS Controls™.

Petroleum and natural gas

For the offshore oil and gas industry, operational risk management is regulated by the safety case regime in many countries. Hazard identification and risk assessment tools and techniques are described in the international standard ISO 17776:2000, and organisations such as the IADC (International Association of Drilling Contractors) publish guidelines for Health, Safety and Environment (HSE) Case development which are based on the ISO standard. Further, diagrammatic representations of hazardous events are often expected by governmental regulators as part of risk management in safety case submissions; these are known as bow-tie diagrams (see Network theory in risk assessment). The technique is also used by organisations and regulators in mining, aviation, health, defence, industrial and finance.

Pharmaceutical sector

The principles and tools for quality risk management are increasingly being applied to different aspects of pharmaceutical quality systems. These aspects include development, manufacturing, distribution, inspection, and submission/review processes throughout the lifecycle of drug substances, drug products, biological and biotechnological products (including the use of raw materials, solvents, excipients, packaging and labeling materials in drug products, biological and biotechnological products). Risk management is also applied to the assessment of microbiological contamination in relation to pharmaceutical products and cleanroom manufacturing environments.[38]

Risk communication

Risk communication is a complex cross-disciplinary academic field related to core values of the targeted audiences.[39][40] Problems for risk communicators involve how to reach the intended audience, how to make the risk comprehensible and relatable to other risks, how to pay appropriate respect to the audience's values related to the risk, how to predict the audience's response to the communication, etc. A main goal of risk communication is to improve collective and individual decision making. Risk communication is somewhat related to crisis communication. Some experts coincide that risk is not only enrooted in the communication process but also it cannot be dissociated from the use of language. Though each culture develops its own fears and risks, these construes apply only by the hosting culture.

See also

References

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  3. ^ a b ISO/DIS 31000 (2009). Risk management — Principles and guidelines on implementation. International Organization for Standardization.
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  28. ^ "UIAA Standard 152: Ice Tools" (PDF). Retrieved 2018-11-01.
  29. ^ "EN 13089 Mountaineering equipment - Ice-tools - Safety requirements and test methods (includes Amendment A1:2015)". Retrieved 2018-11-01.
  30. ^ "Irish Standard I.S.EN 13089:2011+A1:2015 Mountaineering equipment - Ice-tools - Safety requirements and test methods" (PDF). Retrieved 2018-11-01.
  31. ^ "Association for Experiential Education". Retrieved 2018-11-01.
  32. ^ "NOLS Risk Services". Retrieved 2018-11-01.
  33. ^ "Outdoor Safety Institute". Retrieved 2018-11-01.
  34. ^ "Viristar". Retrieved 2018-11-01.
  35. ^ "Adventure Risk Management". Retrieved 2018-11-01.
  36. ^ Arnold, Rob (2017). Cybersecurity: A Business Solution. Threat Sketch. p. 4. ISBN 978-0692944158.
  37. ^ "Duty of Care Risk Analysis Standard (DoCRA)". DoCRA.
  38. ^ Saghee M, Sandle T, Tidswell E (editors) (2011). Microbiology and Sterility Assurance in Pharmaceuticals and Medical Devices (1st ed.). Business Horizons. ISBN 978-8190646741.CS1 maint: Multiple names: authors list (link) CS1 maint: Extra text: authors list (link)
  39. ^ Risk Communication Primer—Tools and Techniques. Navy and Marine Corps Public Health Center
  40. ^ Understanding Risk Communication Theory: A Guide for Emergency Managers and Communicators. Report to Human Factors/Behavioral Sciences Division, Science and Technology Directorate, U.S. Department of Homeland Security (May 2012)
  • ISO/IEC/IEEE 16085-2006 – Systems and software engineering — Life cycle processes — Risk management. 2006. doi:10.1109/IEEESTD.2006.288594. ISBN 978-0-7381-4969-1.

External links

Chief risk officer

The chief risk officer (CRO) or chief risk management officer (CRMO) of a firm or corporation is the executive accountable for enabling the efficient and effective governance of significant risks, and related opportunities, to a business and its various segments. Risks are commonly categorized as strategic, reputational, operational, financial, or compliance-related. CROs are accountable to the Executive Committee and The Board for enabling the business to balance risk and reward. In more complex organizations, they are generally responsible for coordinating the organization's Enterprise Risk Management (ERM) approach. The CRO is responsible for assessing and mitigating significant competitive, regulatory, and technological threats to a firm's capital and earnings. The CRO roles and responsibilities vary depending on the size of the organization and industry. The CRO works to ensure that the firm is compliant with government regulations, such as Sarbanes-Oxley, and reviews factors that could negatively affect investments. Typically, the CRO is responsible for the firm's risk management operations, including managing, identifying, evaluating, reporting and overseeing the firm's risks externally and internally to the organization and works diligently with senior management such as Chief Executive officer and Chief Financial Officer.

The role of the Chief Risk Officer (CRO) is becoming increasing important in financial, investment, and insurance sectors. According to Watson, the majority of CROs agreed that having only exceptional analytical skill is not sufficient. The most successful CROs are able to combine these skills with highly developed commercial, strategic, leadership and communication skill to be able to drive change and make a difference in an organization. CROs typically have post graduate education with over 20 years of experience in accounting, economics, legal or actuarial backgrounds.

A business may find a risk acceptable; however, the company as a whole may not. CROs need to balance risks with financial, investment, insurance, personnel and inventory decisions to obtain an optimum level for stakeholders. According to a study by Morgan McKinley, a successful CRO must be able to deal with complexity and ambiguity, and understand the bigger picture.James Lam, a noted risk professional, is credited as the first person to coin the term. Lam is the first person to hold that position at GE Capital in 1993. The position became more common after the Basel Accord, the Sarbanes-Oxley Act, the Turnbull Report.

A main priority for the CRO is to ensure that the organization is in full compliance with applicable regulations and to analyze all risk related issues. They may also be required to work alongside other senior executives such as with a chief compliance officer. They may deal with topics regarding insurance, internal auditing, corporate investigations, fraud, and information security. The responsibilities and requirements to become a chief risk officer vary depending on the size of the organization and the industry, however most CRO's typically have a masters-degree level of education and 10 to 20 years of business-related experience, with actuarial, accounting, economics, and legal backgrounds common. There are many different pathways to become a CRO but most organizations prefer to promote their own employees to the position internally.

Credit risk

A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants.

Losses can arise in a number of circumstances, for example:

A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan.

A company is unable to repay asset-secured fixed or floating charge debt.

A business or consumer does not pay a trade invoice when due.

A business does not pay an employee's earned wages when due.

A business or government bond issuer does not make a payment on a coupon or principal payment when due.

An insolvent insurance company does not pay a policy obligation.

An insolvent bank won't return funds to a depositor.

A government grants bankruptcy protection to an insolvent consumer or business.To reduce the lender's credit risk, the lender may perform a credit check on the prospective borrower, may require the borrower to take out appropriate insurance, such as mortgage insurance, or seek security over some assets of the borrower or a guarantee from a third party. The lender can also take out insurance against the risk or on-sell the debt to another company. In general, the higher the risk, the higher will be the interest rate that the debtor will be asked to pay on the debt.

Credit risk mainly arises when borrowers are unable to pay due willingly or unwillingly.

DNV GL

DNV GL is an international accredited registrar and classification society headquartered in Høvik, Norway. The company currently has about 14,500 employees and 350 offices operating in more than 100 countries, and provides services for several industries including maritime, renewable energy, oil & gas, electrification, food & beverage and healthcare. It was created in 2013 as a result of a merger between two leading organizations in the field - Det Norske Veritas (Norway) and Germanischer Lloyd (Germany).

DNV GL is the world's largest classification society, providing services for 13,175 vessels and mobile offshore units (MOUs) amounting to 265.4 mill gt, which represents a global market share of 21%. It is also the largest technical consultancy and supervisory to the global renewable energy (particularly wind, wave, tidal and solar) and oil & gas industry - 65% of the world's offshore pipelines are designed and installed to DNV GL's technical standards.

Prior to the merger, both DNV and GL have independently acquired several companies in different sectors, such as Hélimax Energy (Canada), Garrad Hassan (UK), Windtest (Germany) and KEMA (Netherlands), which now contribute to DNV GL's expertise across several industries. In addition to providing services such as technical assessment, certification, risk management and software development, DNV GL also invests heavily in research.

Remi Eriksen took over as Group President and CEO of DNV GL on August 1, 2015, succeeding Henrik O. Madsen.

Enterprise risk management

Enterprise risk management (ERM) in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring process. By identifying and proactively addressing risks and opportunities, business enterprises protect and create value for their stakeholders, including owners, employees, customers, regulators, and society overall.

ERM can also be described as a risk-based approach to managing an enterprise, integrating concepts of internal control, the Sarbanes–Oxley Act, data protection and strategic planning. ERM is evolving to address the needs of various stakeholders, who want to understand the broad spectrum of risks facing complex organizations to ensure they are appropriately managed. Regulators and debt rating agencies have increased their scrutiny on the risk management processes of companies.

According to Thomas Stanton of Johns Hopkins University, the point of enterprise risk management is not to create more bureaucracy, but to facilitate discussion on what the really big risks are.

Financial risk

Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent.A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Dr. Harry Markowitz in 1952 with his article, "Portfolio Selection". In modern portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition of risk.

Financial risk management

Financial risk management is the practice of economic value in a firm by using financial instruments to manage exposure to risk: operational risk, credit risk and market risk, foreign exchange risk, shape risk, volatility risk, liquidity risk, inflation risk, business risk, legal risk, reputational risk, sector risk etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them.Financial risk management can be qualitative and quantitative. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.

Governance, risk management, and compliance

Governance, risk management and compliance (GRC) is the term covering an organization's approach across these three practices: Governance, risk management, and compliance. The first scholarly research on GRC was published in 2007 where GRC was formally defined as "the integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty and act with integrity." The research referred to common "keep the company on track" activities conducted in departments such as internal audit, compliance, risk, legal, finance, IT, HR as well as the lines of business, executive suite and the board itself.

ISO 14971

ISO 14971 is an ISO standard for the application of risk management to medical devices. The ISO Technical Committee responsible for the maintenance of this standard is ISO TC 210 working with IEC/SC62A through Joint Working Group one (JWG1). This standard is the culmination of the work starting in ISO/IEC Guide 51, and ISO/IEC Guide 63. The latest significant revision was published in 2007 with a minor update published in 2009. In 2013, a technical report ISO/TR 24971 was published by ISO TC 210 to provide expert guidance on the application of this standard.

This standard establishes the requirements for risk management to determine the safety of a medical device by the manufacturer during the product life cycle. Such activity is required by higher level regulation and other quality management system standards such as ISO 13485. Specifically, ISO 14971 is a nine-part standard which first establishes a framework for risk analysis, evaluation, control, and management, and also specifies a procedure for review and monitoring during production and post-production.In 2012, a European harmonized version of this standard was adopted by CEN as EN ISO 14971:2012. This version is harmonized with respect to the three European Directives associated with medical devices Active Implantable Medical Device Directive 90/385/EEC, Medical Devices Directive 93/42/EEC, and In-vitro Diagnostic Medical Device Directive 98/79/EC, through the three 'Zed' Annexes (ZA, ZB & ZC). This was done to address the presumed compliance with the 3 Directives that is obtained through notified body certification audits and regulatory submissions that claim compliance to this standard.EN ISO 14971:2012 applies only to manufacturers with devices intended for the European market; for the rest of the world, ISO 14971:2007 remains the standard recommended for medical device risk management purposes.

ISO 19600

ISO 19600:2014, Compliance management systems -- Guidelines, is a compliance standard introduced by the International Organization for Standardisation (ISO) in April 2014.

This standard was developed by ISO Project Committee ISO/PC 271 that was chaired by Martin Tolar. In recent times technical committee ISO/TC 309 has been created and the maintenance and future development of 19600 will be undertaken by members of this committee.

ISO 28000

ISO 28000:2007 (Specification for security management systems for the supply chain) is an International Organization for Standardization standard specifying requirements of a security management system particularly dealing with security assurance in the supply chain. Parts of the standard are considered publicly available, while the entire specification can be purchased from the International Standards Organization.

ISO 31000

ISO 31000 is a family of standards relating to risk management codified by the International Organization for Standardization. The purpose of ISO 31000:2009 is to provide principles and generic guidelines on risk management. ISO 31000 seeks to provide a universally recognised paradigm for practitioners and companies employing risk management processes to replace the myriad of existing standards, methodologies and paradigms that differed between industries, subject matters and regions.

Currently, the ISO 31000 family is expected to include:

ISO 31000:2009 – Principles and Guidelines on Implementation

ISO/IEC 31010:2009 – Risk Management – Risk Assessment Techniques

ISO Guide 73:2009 – Risk Management – VocabularyISO also designed its ISO 21500 Guidance on Project Management standard to align with ISO 31000:2009.

Information assurance

Information assurance (IA) is the practice of assuring information and managing risks related to the use, processing, storage, and transmission of information or data and the systems and processes used for those purposes. Information assurance includes protection of the integrity, availability, authenticity, non-repudiation and confidentiality of user data. It uses physical, technical, and administrative controls to accomplish these tasks. While focused predominantly on information in digital form, the full range of IA encompasses not only digital, but also analog or physical form. These protections apply to data in transit, both physical and electronic forms, as well as data at rest in various types of physical and electronic storage facilities.

Information assurance as a field has grown from the practice of information security.

Internal audit

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal auditing is a catalyst for improving an organization's governance, risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.

The scope of internal auditing within an organization is broad and may involve topics such as an organization's governance, risk management and management controls over: efficiency/effectiveness of operations (including safeguarding of assets), the reliability of financial and management reporting, and compliance with laws and regulations. Internal auditing may also involve conducting proactive fraud audits to identify potentially fraudulent acts; participating in fraud investigations under the direction of fraud investigation professionals, and conducting post investigation fraud audits to identify control breakdowns and establish financial loss.

Internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds.

The Institute of Internal Auditors (IIA) is the recognized international standard setting body for the internal audit profession and awards the Certified Internal Auditor designation internationally through rigorous written examination. Other designations are available in certain countries. In the United States the professional standards of the Institute of Internal Auditors have been codified in several states' statutes pertaining to the practice of internal auditing in government (New York State, Texas, and Florida being three examples). There are also a number of other international standard setting bodies.

Internal auditors work for government agencies (federal, state and local); for publicly traded companies; and for non-profit companies across all industries. Internal auditing departments are led by a Chief Audit Executive ("CAE") who generally reports to the Audit Committee of the Board of Directors, with administrative reporting to the Chief Executive Officer (In the United States this reporting relationship is required by law for publicly traded companies).

List of Dove Medical Press academic journals

This is a list of academic journals published by Dove Medical Press. Journals marked with a † were no longer in publication as of March 2019.

Operational risk management

The term operational risk management (ORM) is defined as a continual cyclic process which includes risk assessment, risk decision making, and implementation of risk controls, which results in acceptance, mitigation, or avoidance of risk. ORM is the oversight of operational risk, including the risk of loss resulting from inadequate or failed internal processes and systems; human factors; or external events. Unlike other type of risks (market risk, credit risk, etc.) operational risk had rarely been considered strategically significant by senior management.

Project risk management

Project risk management is an important aspect of project management. According to the Project Management Institute's PMBOK, Risk management is one of the ten knowledge areas in which a project manager must be competent. Project risk is defined by PMI as, "an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives."Project risk management remains a relatively undeveloped discipline, distinct from the risk management used by Operational, Financial and Underwriters' risk management. This gulf is due to several factors: Risk Aversion, especially public understanding and risk in social activities, confusion in the application of risk management to projects, and the additional sophistication of probability mechanics above those of accounting, finance and engineering.

With the above disciplines of Operational, Financial and Underwriting risk management, the concepts of risk, risk management and individual risks are nearly interchangeable; being either personnel or monetary impacts respectively. Impacts in project risk management are more diverse, overlapping monetary, schedule, capability, quality and engineering disciplines. For this reason, in project risk management, it is necessary to specify the differences (paraphrased from the "Department of Defense Risk, Issue, and Opportunity Management Guide for Defense Acquisition Programs"):

Risk Management: Organizational policy for optimizing investments and (individual) risks to minimize the possibility of failure.

Risk: The likelihood that a project will fail to meet its objectives.

A risk: A single action, event or hardware component that contributes to an effort's "Risk."An improvement on the PMBOK definition of risk management is to add a future date to the definition of a risk. Mathematically, this is expressed as a probability multiplied by an impact, with the inclusion of a future impact date and critical dates. This addition of future dates allows predictive approaches.Good Project Risk Management depends on supporting organizational factors, having clear roles and responsibilities, and technical analysis.

Chronologically, Project Risk Management may begin in recognizing a threat, or by examining an opportunity. For example, these may be competitor developments or novel products. Due to lack of definition, this is frequently performed qualitatively, or semi-quantitatively, using product or averaging models. This approach is used to prioritize possible solutions, where necessary.

In some instances it is possible to begin an analysis of alternatives, generating cost and development estimates for potential solutions.

Once an approach is selected, more familiar risk management tools and a general project risk management process may be used for the new projects:

A Planning risk management

Risk identification and monetary identification

Performing qualitative risk analysis

Communicating the risk to stakeholders and the funders of the project

Refining or iterating the risk based on research and new information

Monitoring and controlling risksFinally, risks must be integrated to provide a complete picture, so projects should be integrated into enterprise wide risk management, to seize opportunities related to the achievement of their objectives.

Quantitative analyst

A quantitative analyst (or, in financial jargon, a quant) is a person who specializes in the application of mathematical and statistical methods to financial and risk management problems. The occupation is similar to those in industrial mathematics in other industries.Although the original quantitative analysts were "sell side quants" from market maker firms, concerned with derivatives pricing and risk management, the meaning of the term has expanded over time to include those individuals involved in almost any application of mathematics in finance, including the buy side. Examples include statistical arbitrage, quantitative investment management, algorithmic trading, and electronic market making.

Total return swap

Total return swap, or TRS (especially in Europe), or total rate of return swap, or TRORS, or Cash Settled Equity Swap is a financial contract that transfers both the credit risk and market risk of an underlying asset.

Treasurer

A treasurer is the person responsible for running the treasury of an organization. The significant core functions of a corporate treasurer include cash and liquidity management, risk management, and corporate finance.

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