Introduction to Risk Management by Derek Hendrikz

Introduction to
Risk Management
derek
hendrikz
www.derekhendrikz.com

Copyright © 2014
Derek Hendrikz Consulting

…the absence of certainty in a future or current
event defines the risk of such event…

…thus, standard deviation is an
appropriate measure of risk…

…as the level of risk increases the
expected return should increase…

Level of Risk = Level of Uncertainty

doubt creates uncertainty

when it becomes difficult to predict the outcome of
an specific event, uncertainty exist www.derekhendrikz.com

imperfect knowledge is therefor the
origin of uncertainty www.derekhendrikz.com

risk management is dependent on the information
that one has to evaluate the likelihood of outcomes
and one’s ability to evaluate such www.derekhendrikz.com

Management…

…a structured approach to managing
uncertainty related to a threat…

…a sequence of human activities including risk
assessment, strategies development to manage
it, and mitigation of risk using managerial
resources…

…risk management strategies include transferring the
risk to another party, avoiding the risk, reducing the
negative effect of the risk, and accepting some or all of
the consequences of a particular risk.…

Risks can be both internal – arising from
within the organisation – and external –
arising from the context or environment of the
organisation. www.derekhendrikz.com

risk management decreases obstacles to
achievement of corporate objectives, growth and
the maximization of shareholders wealth

effective risk management results in more efficient
risk-return trade-off

risk management fundamentally supports the core
function of management
Copyright © 2012 Derek Hendrikz Consulting

risk
sources,
events&
outcomes
?????

Source
•Potential
Event
•Occurrence
Outcome
•Consequence

 Natural threats (lightning, drought, floods, etc.)
 Environmental threats (competitors, markets, etc.)
 Business process threats (inefficient processes,
unproductive departments, etc.)
 Information threats (outdated systems, no knowledge
management, etc.)
 Decision threats (unqualified & unexperienced
management)
 Safety hazards (slippery walkways, oil drums in wood
sheds, etc.)

 Fire;
 Accident;
 Explosion;
 Drop in market share;
 Customer refusing to buy;
 Etc…
bound by specific time and place

 Damage or loss of assets;
 Injury or death of people;
 Financial loss;
 Information loss;
 Legal liability claims;
 Loss of intelligence;
 Loss of energy;
 Failure to achieve organisational outcomes;
 Etc……

Level 1Triggers =We are warned before the event!!!
Level 2Triggers =We are warned during the event!!
Level 3 Triggers =We are warned after the event!

▪ It definitely will happen.
▪ It probably won’t happen.
▪ It doesn’t matter anyway.
▪ Disaster if it happens.

Disaster
Doesn’t matter
Probably won’t happen
Definitely will happen
1
2
3
4
5
1 2 3 4 5
Impact
Event
Probability

Probability
Impact

Contingency
Plan
Mitigation
Plan
Probability
Impact

 What can we do to mitigate (lessen the
harshness) the risk in terms of frequency and
severity...
 Mitigation plans are mostly part of a risk
management initiative.

 What can we do to manage an unplanned
event or occurrence when it happens or how
we can deal with it once it has happened...
 Contingency plans are mostly part of a
disaster management initiative.

Mitigation
Contingency

The Risk Management Process:
Step 1: Risk Identification
Analyse the project to identify sources of risk
Step 2: Risk Assessment
Assess risk in terms of:
 Severity of impact
 Likelihood of occurring
 Controllability
Step 4: Risk Response Control
 Implement risk strategy
 Monitor and adjust plan for new risks
 Change management
Step 3: Risk Response Development
 Develop a strategy to reduce possible damage
 Develop contingency plans
Known Risks
Quantified Risk
Managed Risk
New Risks
New Risks
New Risks

Understand Quantify Manage

Introduction to Risk Management by Derek Hendrikz

Introduction to Risk Management by Derek Hendrikz

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