RISK MANAGEMENT

WHAT IS RISK??
Risk is defined as the chance of
having a loss due to occurrence of
an event
The risk is always associated with
the loss aspects since the word
itself has the association of DANGER
OF LOSS
The definition can be
PROBABAILITY OF THE
OCCURRENCE OF AN EVENT
RESULTING IN LOSS/ GAIN
CLASSIFICATION OF RISKS
SPECULATIVE RISKS & PURE
RISKS

DYNAMIC RISKS & STATIC RISKS

FUNDAMENTAL RISKS

PARTICULAR RISKS
SPECULATIVE RISKS PURE RISKS
Operation of this These do not change
leads to profit /loss with the risk

Leads to speculation The operation of

like investment of these perils does
capital in a new bring in loss/damage
venture to property/assets/
liability

Operation is desired Not desired

Classification of Risks
DYNAMIC RISKS STATIC RISKS
Changes with the Like pure risks these
change in fashion, risks remain static and
buying behaviour, do not change due to
trends, technology etc other reasons like that
It denotes dynamic of dynamic risks
The operation of these
nature of the customer
behaviour and the risks always bring about
products they like to losses
own or use Operation is not desired
If an organization is not May result in partial or
prepared then it may total cessation of
go out of existence activities

Classification of Risks
PARTICULAR RISKS FUNDAMENTAL RISKS
Risks which relate Relates to the
to one or few society at large
firms, factories or Losses are suffered
organizations only by large section of
Losses are suffered the society/nation(s)
Losses may be due
by one or few
more members of to natural
catastrophes, riots,
the society
epidemics etc

Classification of Risks
 ICEBERG OF LOSSES

INSURED LOSSES

UNINSURED LOSSES
UNINSURED LOSSES
LOSS OF GOODWILL
LOSS OF MARKET
LOSS OF CUSTOMERS
LOSS OF SHAREHOLDER VALUE
LOSS OF KEY EMPLOYEES
LOSS OF COSTS INCURRED
Risk Management-
Definition
Risk Management is defined as the
systematic way of ensuring
protection of business resources
and income against losses so that
the aim , goals and vision of the
company can be reached.
Thus Risk Management creates
stability and contributes to
growth and assures profitability
of the Organization.
ADVANTAGES OF RM
To achieve the objectives of the
Organization
To ensure that the goals short term
and long term are achieved without
any disruption or delay
To optimize the utilization of the
resources
To have knowledgeable of insurance
arrangements and have considered
decisions on insurances to be availed
Development of Risk
Management
The Industries / Business houses want
to have incident free/ accident free
working to achieve their objectives
For this purpose it is necessary to
understand the loss producing events
, the nature of losses/ extent of losses
to come up with the loss control
measures. EXPOSURE ANALYSIS
Risk Management aims to help the
owners to have control on loss
incidents and to reduce the extent of
losses by proper study of the
exposures and actions to be taken to
control the same
Risk Management process
The steps in Risk Management process
are:
1. Risk analysis- Risk identification &
Risk evaluation
(Risk measurement)
(Risk quantification)
2. Risk control - Risk avoidance
(Risk minimization)
3. Risk transfer- Insurance with
Professional
Insurance companies
4.Risk financing- Risk retention
5. Rolling review
How the loss is caused?
Loss is caused by the operation of perils
which refers to the causes for the losses
Loss or damage is caused by the
operation of perils such as fire,
explosion, flood, storm etc
The loss potential ( extent of loss)
depends on conditions which are
favourable for the incident to assume
large proportions. This is known as
hazard or potential of the loss. More the
potential severe will be the extent of
loss
PERIL ( CAUSE)----------------LOSS(EFFECT)
HAZARD
Causes of losses
Perils- such as fire, explosion etc
Human factors- such as negligence,
carelessness, inadequate training,
inadequate supervision, lack of proper
systems and controls
Inadequate maintenance ( predictive/
routine/ annual maintenance)
Failure of Plant/ machinery due to
breakdowns (failure of safety devices)
Natural perils such as flood, cyclone,
earthquake, landslide, rockslide &
subsidence
Extraneous: Accidents involving Gas
or chemical in nearby units
TYPES OF LOSSES
Property losses- losses which can
happen to the Assets
Pecuniary losses- Financial Loss which
can be caused by business interruption
due to the loss to the assets, financial
loss due to infidel acts of employees,
storekeepers and other employees
Liability losses- Loss to the Third Party
property or third party personnel due to
activities of the Organisation
Personal injuries- accidents resulting in
fatal or non-fatal injuries to the
employees
HAZARD
Hazard is defined as conditions
existing which are favourable for the
loss becoming severe
CLASSIFICATIONS OF HAZARD
Physical hazard- relating to
physical properties.
Moral hazards -relating to the
moral behavoiur of the clients
Morale hazard -Relating to the
morale & working conditions of the
employees & employer-employee
relationships
RISK ANALYSIS
Risk analysis is the process of identifying and
evaluating risk factors, present or anticipated,
and determining both the probability and the
impact of identified risk factors.
It is a preliminary step in establishing a risk
management strategy, which is intended to
increase the possibility that the application
development project produces the desired
outcome while minimizing risk factors.
It entails both preventive and corrective
actions to each of the identified risk factors,
particularly those with a medium to high
rating level.
RISK ANALYSIS-
METHOD
LISTALL POSSIBLE RISKS
INVESTIGATE BY
STUDY
INQUIRY
DOCUMENT REVIEW
PHYSICAL INSPECTION
ANALYSE EACH RISK
RISK EVALUATION
Methods available are
Study of Organisational charts/
balance sheets, accounting records
Process flow diagrams, P & I diagrams
Input- output analysis- contribution
from various sections, inter-
dependencies
Study of completed checklists
Threat analysis- Denial of access,
Loss of services
EVALUATION METHODS
INPUT OUTPUT ANALYSIS To
trace the flow of goods and
services to identify the
contribution of parts of
organisation to the total earnings
and to analyse exposures.
EVALUATION OF RISKS-
THREAT
ANALYSE THE THREATS TO BUSINESS
DENIAL OF ACCESS- CHEMICAL
LEAKAGE, COLLAPSE OF NEARBY
BUILDINGS, STRIKE, PICKETING,
DAMAGE TO WATER/SEWER MAINS,
GOVT RESTRICTIONS
LOSS OF SERVICES WATER,
POWER,RAINS, FLOODS, CYCLONES
RISK HANDLING
METHODS
ADOPTION OF LOSS CONTROL
MEASURES
Loss control measures involve the
nature of the devices utilized and the
human factor
For any system to be effective the
employees concerned need to be
properly trained and knowledgeable.
The Management need to ensure that
the systems employed are in good
working order the employees are
regularly trained.
RISK AVOIDANCE
This is also known as Risk
Elimination
Identify the risk and if possible
avoid the risk by eliminating the
source
It is like avoiding a location due
to seismic activity in the area
Ex:- Avoiding a low lying location
which is susceptible for flooding
RISK CONTROL/PLANNING
Risk planning and control, as a shared or
centralized activity must accomplish
the following tasks:
Identify concerns that can impact the
project implementation
Identify risks, review/assess their
intensity and document the risk
owners.
Evaluate the risks with reference to
probability of their occurrence and
possible consequences
Assess the plausible options for
accommodating the recognized risks
CONT.
Prioritise the efforts required for
managing the risks
Develop/discuss and adopt risk
management plans
Authorize the implementation of the
risk management plans
Monitor the risk management efforts
and
Initiate the remedial actions as
considered necessary
RISK RETENTION
To keep the costs under control, after
analyzing the risks the Management,
may decide to retain some of such
losses to its account.
Once a decision is taken , then
necessary provision needs to be made
to avoid such a loss ,if happens, eating
into the operating budget
Special contingency funds are
therefore to be created for this
purpose
RISK TRANSFER
Risk transfer involves payment
by one party (the transferor) to
another (the transferee, or risk
bearer).
The transferee agrees to assume
a risk that the transferor desires
to escape.
TOOLS OF RISK TRANSFER
INCORPORATION

DIVERSIFICATION

HEDGING

INSURANCE
CONTRIBUTIONS OF RM
TO THE BUSINESS
Achievement of objectives/ goals
Reduced anxiety due to losses are of
reasonable magnitude and does not cause
serious loss situations
Goodwill is maintained by meeting the
obligations
The business is able to survive competition
Successful and continued operations
Resultant growth and sustained earnings
Better care for employees and society at
large
Reduction of expenses
Better relationships between customers,
suppliers, employees
A CASE STUDY
Chemical plant
1. Site selection
2. Improper Layout
a. location of the plant in the downwind
direction.
b. higher transportation cost.
c. process area very close to the public living.
d. wrong material selection.
3. Risk assessment
a storage
b. fire protection
c. toxicity
d. hazard index rating
e. fire and explosion hazard
f. compatibility
4. Process safety management

a. reliability assessment of process

equipment
b. safety trips and interlocks
c. quality testing tools
d. removal of fugitive
emissions.

5. Electrical safety
a. no hazard classification and proper
electrical fittings
b. protection against static electricity
c. lightening arrestor
6. Safety Audits
a. conceptual stage
b. extension stage
c. commissioning and trial run
d. operation stage
e. periodic.

7.Emergency Planning
a. on site
b. off site
c. integral multidisciplinary disaster approach

8. Training
9. Implementation
The best / successful project would be:

Get suggestions - as many as possible

Assess risks integrated with

business planning and evaluate.

Subject them to critical review

Set priorities based on the

requirements

Choose the project

If the risk is high

If Manageable

Proceed