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THE CONCEPT OF RISK
It is the probability or threat of damage, injury, liability, loss, or other negative occurrences that is caused by external or internal vulnerabilities, and that may be neutralized through pre-emptive action. Risk arises out of uncertainty. Thus risks are uncertain future events that could influence the achievement of objectives.
In a way, we can say the risk is the exposure to the possibility of such things as economic or financial loss or gain, physical damage, injury or delay, as a consequence of pursuing a particular course of action.
If you run a school or teach, there are many factors to take into account, for example, the safety of teachers and scholars, the satisfaction of parents and children on the service delivered, compliance to legislation and Department of Education directives, the financial viability of the school.
The concept of risk has two elements, the likelihood of something happening and the consequences if it happens. Risk can arise from internal or external sources and might include exposure to such things as economic or financial loss or gain, physical damage, failure of a project to reach its objectives, client dissatisfaction, unfavorable publicity, a threat to the physical safety or breach of security, mismanagement, failure of equipment and fraud.
Risk management is as much about identifying opportunities as avoiding or mitigating losses. It is a logical and systematic process of establishing the context, identifying, analyzing, evaluating, treating, monitoring and communicating risks associated with any activity, function or process, in a way that enables an organisation to minimize losses and maximize opportunities.
There is no such thing as a risk-free environment, but many risks can be avoided, reduced, or eliminated through good risk management. Good risk management also takes advantage of opportunities while analyzing and dealing with risk. Good risk management is forward-looking and helps to improve decisions. It is not just about avoiding or minimizing losses, but about dealing positively with opportunities. It is a powerful tool for managers.
Good risk management is based on a well-planned, logical, comprehensive, and documented strategy. This strategy provides general policy guidance, and plans and procedures that can be used as part of the organisation’s everyday work to manage risk. The complexity and extent of the strategy should be commensurate with:
- The level of risks (i.e. The likelihood and consequence of each risk) to which the organisation is exposed
- The frequency and magnitude of risks.
Good risk management must be based on a strategy, but a strategy itself doesn’t manage risks. Leadership, an effort by all levels of management and staff, and careful monitoring by boards and audit committees are needed to make the strategy a success.
Risk management process
In order to manage risks, a risk management process must be followed. This process includes the following key steps.
1. Identifying Risks
The risk assessment process begins with the identification of risk categories. An organization most likely will have several risk categories to analyze and identify risks that are specific to the organization.
2. Risk assessment
Once the risks have been identified, they are then assessed on their likelihood of occurrence and the impact. This process can be simple as in case of assessment of tangible risks and difficult like in the assessment of intangible risks. This assessment is more or less a guessing game and the best-educated guess decides the success of the plan.
3. Risk planning
Once the risk areas are identified and analyzed, the next step is to eliminate, reduce, or transfer the risk. That is, a way of dealing with each risk is identified and implemented. The output of risk planning is a risk management plan.
4. Risk monitoring
A risk management plan can never be perfect. Critical evaluation of a risk management plan at every stage of implementation is very necessary, especially at an early stage. It will allow you to discover the flaws before it gets into the action.
Risks should not necessarily be avoided. If managed effectively, they allow us to seize opportunities for improving services and practices. Remember the old adage “nothing ventured, nothing gained”, ‘No pain, no gain ‘could actually be “nothing ventured, sure to lose”. In summary, where there is a risk, there is an opportunity and No risk, no reward.
Generally, everyone has some general understanding of the meaning of the word ‘risk’. As children, we are taught that something is risky, or we are told not to take risks. But what exactly is ‘a risk’?
In fact, we all take risks every day quite happily. We do things knowing that there is a risk involved. For example, we know that there is a risk involved in driving a car or riding a bike. We accept the level of risk because in our minds, although the potential consequences can be death or serious injury, we think that if we are careful, the chances of something dreadful happening is very low.