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Risk Identification

The process of identifying the exposures to potential property, liability or personal losses.
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UK: The initial risk management step to identify the firm’s exposure to risk. It entails: reviewing all relevant data on business assets, activities and personnel; and checking financial statements, including the balance sheet and the loss of profit and loss accounts, to identify potential sources of loss. Other techniques include interviewing, in-house workshops, observation and preparing flow charts to show all operations of the organisation and all loss-possibility situations in the purchase-process-distribution sequence. Risk identification makes it possible to prepare a risk inventory.

Risk identification Checklist

A listing of all the loss exposures that might possible exist.Financial Statement Method : The use of financial statements, together with a checklist, to identify the exposures of a particular business.Flow Chart Method : The use of flow charts, together with a checklist, to identify the exposures of a particular business.Probability Distributions : Theoretical probability distributions for which a formula has been developed based on some assumptions about the behavior of the variable. Useful distribution in risk management are the position distribution, the normal distributions, the log-normal distribution, and others.Probability Distribution of Total Rupee Losses Per Year : A listing of all the total rupee losses that might occur in a year and the probabilities of each possible total rupee amount. The two component probability distributions that determine this probability distribution are the probability distribution of (i) the number of occurrence, and (ii) the rupee loss per occurrences.Probability Moderate : The likelihood of a loss has happened once in a while in the past and can be expected to occur sometime in the future. ‘Loss Maximum Probable : The worst loss that is likely to occur because of a single event. Synonym to loss maximum estimated, loss estimated probable or possible maximum, loss probable maximum etc.Loss, Maximum Probable Yearly Aggregate : The largest aggregate rupee loss that is likely to occur during the year. This aggregate loss depends upon the number of occurrences per year as well as their severity.Probability of Loss, Spatial : The proportion of similar units exposed to loss over a given time period that experience a loss, given a very large number of units exposed.Probability of Loss, Temporal : The proportion of similar times during which a unit is exposed to a loss that the loss will occur, given a very large number of times exposed.Variation, Coefficient of : The standard deviation divvied by the mean or the expected value. A measure of the dispersion, scattering or variation of the outcomes in a probability distribution. The larger the coefficient of variation, the less predictable is the future outcome.Risk, Interest Rate : Unpredictability of future interest rates. Whether a rise or fall of interest rates has favorable or unfavorable effects on an organization depends upon whether it is a debtor or creditor and the extent to which its resources are committed to borrowing or lending.

Risk inventory/register

A record of all risks identified during the risk management process. Each risk is described, classified by type and assessed in terms of its potential in terms of severity and probability. The proposed control or responses measures are noted together with details of the ‘risk owner’, i.e. the manager or employee responsible for implementing the control measures and monitoring the risk. The ‘owner’ is given a target date for implementation or other designated action.

Risk Management

“The identification, evaluation, control and prevention, and transfer of risk.” Some other definitions include (a) The protection of assets, earnings, liabilities and people of an enterprise with maximum efficiency and at minimum cost. (b) The identification an evaluation of the threats to the expectations of an organization and the development of means whereby the expectations will be fulfilled in the most efficient manner by removing or reducing those threats. (c) The identification, measurement and economic control of risk that threaten the assets an earnings of a business or other enterprise. (d) Risk Management is the identification, assessment and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. (e) Risk Management is the process of measuring, or assessing, risk and developing strategies to manage it. Strategies include avoiding the risk, reducing the negative effect of the risk, transferring the risk to another party and accepting some or all of its consequences. (f) Traditional risk management focuses on risks emanating from physical or legal causes (e.g., natural disasters or fires, accidents, death and lawsuits. (g) Financial risk management focuses on risks that can be managed using traded financial instrument. (h) For nonprofit organizations, the definition can read: The identification, measurement and economic control of risk that threaten the continued provision of essential goods and services.
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A management discipline whose goal is to protect the assets and profits of an organization by reducing the potential for loss before it occurs, and financing, through Insurance and other means, potential exposures to catastrophic loss such as acts of God, human error or court judgments. In practice, the process consists of logical steps: risk or exposure identification; measurement and evaluation of exposures identified; control of those exposures through elimination and/or reduction; and financing the remaining exposures so that the organization, in the event of a major loss, can continue to function without severe hardship to its financial stability.
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A process that involves assessing all possible causes of loss to a company and recommending how to avoid, reduce, or transfer the risk, whether through insurance coverage or through another means.
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MEDICAL, US: For financial aspects of health care benefits, administrative procedures to reduce the bad effects of financial loss by recognizing possible sources of loss, measuring the consequences if a loss takes place, and adopting controls to cut down actual loss or their effects.
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The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance.
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UK: The purpose of risk management is to limit the organisation’s exposure to risk to an acceptable level taking account of probability of the loss occurring, its impact or both. The principles can be directed at limiting adverse outcomes or achieving desirable ones. Procedures involving risk identification; analysis and measurement of risk (risk assessment); selection of control measures and measures of financing risk (risk treatment); implementation of control; monitoring and updating control measures. Risk control and risk financing are at the heart of an iterative process aimed at reducing the likelihood and severity of loss.

Risk management and systems and control

From 2004 (Integrated Prudential Sourcebook) firms must have written policies setting out the risks that they face and their strategy for managing and controlling those risks. As a minimum they will need clear policies to cover credit, market, liquidity, operational and group risk and, for insurers, specific risks relating to underwriting, claims provision and claims management. The policies must be endorsed and monitored by the firm’s managing body, e.g. the board.

Risk Management as a Decision Process

Once an organization’s Sr. management has declared minimizing the adverse effect of accidental losses to be a goal, one logical procedure for achieving this goal is to (i) identify and analyze exposures which may lead to accidental losses; (ii) formulate feasible risk management alternatives for dealing with these exposures; (iii) select the apparently best alternative technique or combination of techniques; (iv) implement the chosen techniques; (v) monitor the results; and if necessary (vi) modify the chosen techniques to adapt to change in loss exposures or to tolerable changes in the level of losses.

Risk Management Object

According to Fayol: “The object of this (security activity) is to safeguard property and persons against theft, Fire and flood, to ward of strikes and felonies and broadly all social disturbances or natural disturbances likely to endanger the progress and even the life of the business. It is the master’s eye, the watch dog of the one man business, the police or the army in the case of the state. It is, generally speaking, all measures conferring security upon the undertaking and requisite peace of mind upon the personnel”.