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A brief intro to DRM Approach (part 1) |
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With a range of acceptable definitions, from a probability event to a cure for market imperfections [1], caused by conflicts of interest between shareholders and distortions caused by taxes, transaction costs and legal systems, from a potential loss to the possibility to take advantage of an opportunity, risk is a phenomenon that should not be ignored.
Understanding of internal and external risks that may have impact on the organization and ensuring that these risks are managed in the best way should be one of the first priorities of an organization's leadership.
As most of us already know, risk management means making steps in order to identify those risks with a highly probability of causing problems to a project, to analyze the probability of loss and the magnitude of loss for each risk and developing composed risks, to classify the risk points identified according to the composed risks they belong to.
Any approach would choose and any name would carry the risk management process, all models actually go through the same steps:
- risk identification,
- risk assessment,
- risk prioritization,
- risk response plan implementation,
- monitoring and risk control.
Depending on the author of the methodology, the name or the order of these sub processes is different.
Thus, risk identification and risk quantification are sometimes taken together and are called risk assessment or risk analysis;
the risk response plan is sometimes met under the name of risk mitigation plan;
the risk response plan and the risk control plan are sometimes taken together under the name of risk management plan.
Along with these steps, one should be interested in business continuity plan and implementing a system of communication throughout the risk management process.
We would like to add a comment - the importance of focusing on a step that needs to take place before the above mentioned ones: analyzing the context in which the project is being designed and implemented and the context in which the risk management process will run. Moreover, it is mandatory to specify in an explicit manner that following the stages of identification, assessment, prioritization and response planning needs to come the implementing risk management plan step.
Source: [1] Kaen, F.R., Risk Management, Corporate Governance and the Modern Corporation, in Frenkel, M., Hommel, U., Rudolf, M. (editors), Risk Management: Challenge and opportunity, Ed. Springer, New York, 2000
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