risk management section 1
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1. Risk Management Process 1
MSc Maintenance Management
Module: Reliability and Availability Assessment
Lecturer: Dr Babakalli Alkali
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1. Risk Management Process 2
Risk Management Process
Risk Management Section 1
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1. Risk Management Process !
Basic terminology
"a#ardis any source o$ %otential damage& 'arm or adversee$$ects on somet'ing or someone under certain conditions at(ork.
Basically& a 'a#ard can cause 'arm or adverse e$$ects )toindividuals as 'ealt' e$$ects or to organi#ations as %ro%erty ore*ui%ment losses+.
Riskis t'e %ossibility o$ a loss or ot'er adverse event t'at 'ast'e %otential to inter$ere (it' an organi#ation,s ability to $ul$ill itsmandate.
Risk is unavoidable and %resent in virtually every 'umansituation. -t is %resent in our daily lives& %ublic and %rivate sector
organisations.
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1. Risk Management Process
Common risks and possible responses
Area of Risk Examples Response Type of response
Governance /'e governing bodymay not meet itsres%onsibilities
/raining andorientation
Directors insurance
Reduce risk t'roug'
c'anged %ractice
/rans$er risk
Strategicdirections
/'e organisation mayloose its (ay in aconstantly c'anging
environment
Strategic %lanning Reduce risk t'roug'c'anged (ork %ractice
0lients may receivean ina%%ro%riateservice causing 'arm
Pro$essional indemnityinsurance
/rans$er risk
Sta$$ may notunderstand ('at t'eyneed to do in a given
set o$ circumstances
rganisational manual Reduce risk t'roug'
c'anged (ork %ractice
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1. Risk Management Process
Common risks and possible responses (cont.)
Area of Risk Examples Response Type of response
Physical risks $$ice e*ui%ment maybe unsa$e
ccu%ational 'ealt'and sa$etycommittee and%rocesses
Avoid risk t'roug' not%roviding service
Sta$$ or clients may beinvolved in a caraccident
-nsurance /rans$er risk
Legal Legal re*uirements maynot be met
Register o$ allrelevant legislation
0om%liance %lan
Avoid risk t'roug'com%liance
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1. Risk Management Process 3
Common risks and possible responses (cont.)
Area of Risk Examples Response Type of response
Financial risks 4inances may beinsu$$icient to meeto%erational e5%enses
4inancial %lanning Reduce risk t'roug'c'anged (ork%ractices
4raud 4inancial systems
Audit
Reduce risk t'roug'c'anged (ork%ractices
Property 4ire Provision o$ $iree5tinguis'ers6
marked e5its
-nsurance
Reduce risk t'roug'c'anged (ork%ractices
/rans$er risk
7art'*uake -nsurance /rans$er risk
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1. Risk Management Process 8
Common risks and possible responses (cont.)
Area of Risk Examples Response Type of response
Environmental /ree damage tobuildings $rom $allen
trees or branc'es
/ree maintenance %lan Reduce risk t'roug'c'anged (ork%ractices
/ree damage duringstorm
-nsurance /rans$er risk
7art'*uake -nsurance /rans$er risk
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1. Risk Management Process 9
!at is Risk "anagement #
Risk managements'ould be central %art o$ any organisation,s
strategic management.
-t is t'e %rocess ('ereby organisations met'odically address t'erisks attac'ing to all t'eir activities(it' t'e goal o$ ac'ievingsustained bene$it (it'in eac' activity and across t'e %ort$olio o$
all activities.Risk managementis an integral com%onent o$ good
managementand decision making at all levels.
/'e $ocus o$ good risk managementis t'e identi$ication and
treatment o$ risk. -ts obective is to add ma5imum sustainablevalue to all t'e activities o$ t'e organisation.
Risk managements'ould take into account 'uman $actors.
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1. Risk Management Process ;
!at is Risk "anagement # (cont.)
Risk managements'ould be a continuous and develo%ing
%rocess ('ic' runs t'roug'out t'e organisation,s strategyandt'e im%lementation o$ t'at strategy.
-t s'ould address met'odically all t'e riskssurrounding t'eorganisation,s activities %ast& %resent and in %articular& $uture.
-t must be integrated into t'e culture o$ t'e organisation(it' ane$$ective %olicy and a %rogramme led by t'e most seniormanagement.
-t must translate t'e strategy into tactical and o%erational
obectives& assigning res%onsibility to managers and em%loyeetomanage risk as %art o$ t'eir ob descri%tion.
Risk managements'ould be trans%arent and inclusive.
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1. Risk Management Process 1'en eit'er source or %roblem is kno(n& t'e events t'at can lead to a %roblemcan be investigated. 4or e5am%le: stake'olders (it'dra(ing during a %roect mayendanger $unding o$ t'e %roect6 lig'tning striking a Boeing 88 during takeo$$may make all %eo%le onboard immediate casualties.
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1. Risk Management Process 1
Risk "anagement Process (cont.)
. %dentifying risks in yo&r organisations (cont.)
/'e aim is to develo% a com%re'ensive list o$ t'e sources o$ risks andt'eir conse*uences. /'ere is no one rig't (ay to do t'is. Somestrategies are:
= brainstorming at a sta$$ meeting.
= brainstorming (it' stake'olders (it' kno(ledge and e5%erience.= systematic analysis& e.g. $lo( c'arting systems and %rocesses.
= develo%ment o$ ?('at i$? scenarios.
= researc'ing relevant data& suc' as inury rates& insurance claims&
deat' rates& etc.
Risk %dentification and eval&ation met!ods detailed in ection and *
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1. Risk Management Process 13
Risk "anagement Process (cont.)*. Analysing risks in yo&r organisations
Some o$ t'e key *uestions in analysing t'e risks are:= >'at is t'e likeli'ood o$ t'e risk@= >'at is t'e conse*uence@= >'at is t'e level o$ risk )combination o$ likeli'ood conse*uence+@= >'at $actors a$$ect t'e likeli'ood or conse*uences@= >'at is t'e level o$ uncertainty@
= >'at are t'e limitations to t'e analysis@
uestions can also be asked in relation to o%%ortunities )ie risks (it' %ositive
conse*uences+:
= >'at is t'e likeli'ood o$ t'e o%%ortunity@= >'at is t'e conse*uence@= >'at is t'e level o$ o%%ortunityCrisk )combination o$ likeli'ood and
conse*uence+@
Risk %dentification and eval&ation met!ods detailed in ection and *
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1. Risk Management Process 18
Risk "anagement Process (cont.)
+. Eval&ating risks in yo&r organisations
Risks must be assessed as to t'eir %otential severity o$ lossand to t'e
%robability o$ occurrence. /'is can be sim%le to measure& $or e5am%le t'e
value o$ a lost building& or im%ossible to kno( $or sure like in t'e case o$ an
unlikely event occurring )e.g. B'o%al+./'ere$ore& in t'e assessment %rocess it
is critical to make t'e best educated guesses %ossible in order to %ro%erly
%rioriti#e t'e im%lementation o$ t'e risk management %lan.
/'e $undamental di$$iculty in risk assessmentis determining t'e rate o$
occurrencesince statistical in$ormation is not available on all kinds o$ %ast
incidents. 4urt'ermore& evaluating t'e severity o$ t'e conse*uences )im%act+ is
o$ten *uite di$$icult$or immaterial assets. evert'eless& risk assessment s'ould
%roduce suc' in$ormation $or t'e management o$ t'e organi#ation t'at t'e
%rimary risks are easy to understand and t'at t'e risk management decisions
may be %rioriti#ed.
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1. Risk Management Process 19
Risk "anagement Process (cont.)+. Eval&ating risks in yo&r organisations (cont.)
umerous di$$erent risk $ormulae e5ist& but %er'a%s t'e most (idely acce%ted$ormula $or risk *uanti$ication is:
Rate o$ occurrence multi%lied by t'e im%act o$ t'e event e*uals risk
Risk E Rate o$ occurrence F im%act o$ t'e event
T!is simple comp&tation enables a ro&g! and ready comparison of risks.
Some o$ t'e key *uestions in risk evaluation are:
= >'at are acce%table levels o$ risk@
= >'at are intolerable levels o$ risk@
= Does t'e risk need treatment@
= >'at are t'e %riorities $or treatment o$ risks@
Risk %dentification and eval&ation met!ods detailed in ection and *
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1. Risk Management Process 1;
Risk "anagement Process (cont.),. Treating risks in yo&r organisations
nce risks 'ave been identi$ied and assessed& t'ey 'ave be managed.Strategies to manage risks$all into one or more o$ t'e $our maor categories:
= Avoidance )eliminate+
= Reduction )mitigate+
= /rans$erence )outsource or insure+
= Retention )acce%t and budget+
Risk Avoidance:
-ncludes not %er$orming an activity t'at could carry risk. An e5am%le (ould be
not buying a %ro%erty or business in order to not take on t'e liability t'at
comes (it' it.
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1. Risk Management Process 2'en a risk assessment 'as identi$ied a 'a#ard as 'avingunacce%table risks(e 'ave to %ut in %lace control measures toeliminate t'e risk or reduce t'e risk to an acce%table level. /'is is amust i$ t'e risk is to be retained.
"a#ards can arise $rom:
= t'e (ork%lace environment
= t'e use o$ %lant and e*ui%ment
= %oor (ork design or %ractices
= ina%%ro%riate management systems and %rocedures
= 'uman be'aviour
Risk 0ontrolis t'e measures (e take to eliminate or reduce t'e risk toan acce%table level. /'ere is a "ierarc'y o$ control('ic' s'ould be$ollo(ed ('en c'oosing met'ods $or controlling a %articular risk.
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1. Risk Management Process 2;
3ierarc!y of Control
>'en selecting a%%ro%riate measures to control a risk a control
measure s'ould be selected $rom as 'ig' on t'e 'ierarc'y o$ controllist
as %racticable. /'e "ierarc'y o$ 0ontrol list usually com%rises:
1. 7limination
2. Substitution
!. -solation. 7ngineering 0ontrols
. Administrative 0ontrols
3. Personal Protective 7*ui%ment
/'e list may be customised $or eac' industry or a%%lication& 'o(ever
t'e basic order o$ %riorities s'o(n above s'ould not be c'anged.
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1. Risk Management Process !
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