An Approach to Risk Management

By IT ToolBox: 

Risk is defined as the possibility of unsatisfactory outcome. The word 'possibility' implies a probability level; while the word 'unsatisfactory' implies a measure of 'loss' to someone. As a means of comparing risks, for purposes of directing our efforts toward managing them, we use the concept of relative "risk exposure". Risk Exposure is defined by the relationship:

Risk Exposure = Prob (UO)* Loss (UO)

where Prob(UO) is the probability of an unsatisfactory outcome, and Loss(UO)loss to the parties affected if the outcome is unsatisfactory. is the

Concept of Risk Management

Risks are a major influence on the success or failure of a project. They must be managed by applying a conscientious effort to their reduction or elimination. Not all risks need to be eliminated entirely; often it is sufficient to reduce the project's exposure to a level that is acceptable to the project. Risk management costs time and effort, but the rewards can be significant. Without risk management, the danger of failure is magnified.

Approach to Managing Risks to SYSTEM Z.

The XYZ Partners will apply a risk management approach based on the following principles.

a. All team members assist in identifying risks.

b. Each identified risk is assessed in terms of its probability of occurrence and its resulting loss.

c. The risk exposures are calculated and used to prioritize risks.

d. High priority (high exposure) risks will be managed first.

e. All team members assist in suggesting solutions to minimize risks.

f. Individual plans will be developed for the highest priority risks to reduce their exposure.

g. Plans consist of specific actions to be taken by specific individuals within specific time frames.

h. Progress is monitored and adjusted if necessary.

i. As actions are performed, the risk exposure changes, so the priorities continually change.

Methodology for Risk Management.

To implement the preceding approach the XYZ Partners will follow a methodology that is based on a hierarchy of activities and tasks:

a. Defining Risks:

(1) Identifying Risks

(2) Assessing and Prioritizing Risks

b. Managing Risks:

(2) Planning

(3) Acting

(3) Monitoring, Reporting and Adjusting

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