Risk management is a structured strategy aimed at managing uncertainties and includes actions such as its identification, assessment, monitoring, and the best way of reducing such risks to an organization. Risks, on the other hand, are events, conditions or circumstances that expose our businesses to detrimental consequences. Therefore, a good risk management plan coupled with a suitable risk management strategy will be instrumental in reducing costly and stressful issues (Van der Vegt et al., 2015). A risk management plan will incorporate three key areas: describing the potential risk, incorporation of an analysis of the impact of the identified risk, and finally it will include strategies that will help the business to alleviate the potential risks should it occur.
Risks to our businesses can exist anywhere, and the key issue is how to predict them before their occurrence (Domokos et al, 2015). The prediction of such risks will involve a systematic process of making a realistic analysis of the nature of such risks to a business since its identification paves the way for an appropriate management. Concerning risk management information, risk management will aim to facilitate the information across all discipline within a business or an organization that is keen to manage all eventualities in a proper manner. Its purpose, therefore, will be to generate good ideas and to be able to promote good practices for individuals that have the duty of managing such risks. More often than note, assessment of risks is usually very crude and the probability of getting things done incorrectly can be consequential and may lead to lost opportunity and massive cost to the business.
The issue of intranets, which is concerned with the visible faces that is imperative in addressing and mitigating common business risk have been of discussion of late. A good thing with intranets is that it gives fundamental means by which different people in an organization can be connected in such a way that reduces mistakes. When combined with risk maps, which provides critical assessment, both in terms of forecast and analysis of risks that any organization that is involved with business is likely to face. This approach is vital in assessing the emerging risks and trends making it easy for the management to be able to correlate such information with that of their business. The paper will give a full analysis of these key areas together with the catastrophe modeling, which is a contemporary approach to risk management. It is imperative since it can lead to the growth of risks and management strategies vital for the reduction and spread of such risks to cause future mischance to a firm. In essence, the research paper will give a full description of each key area that is vital to risk mitigation and analysis. It will also include a discussion on values at risk analysis at all stages of risk management.
Risks can come from innumerable sources such as insecurity of the financial markets, threats emanating from project letdown, for example, improper design and development and accidents among other risks. In general, major organizations in this category face internal risks such as non-compliance and information breach among other risks (Zhou, Vasconcelos & Nunes, 2008). Means, characterizations and goals of risk management vary depending on whether the formula is in the context of safety, project administration, industrial division or even financial sets that are in line with the organization.
In most cases, risk sources are more often identified and located not only in the infrastructural or technological assets and tangible variables, but also in the human variables, the state of the mind and the decision that is likely to be made. The collaboration that occurs between the human factors and the palpable variables provides the need of also focusing on the human factors as a fundamental driver in creating a risk management blueprint (Domokos et al., 2015). It is very hard to apply the objective and the systematic self-evaluation, and be able to make decisive steps just because of a mere feeling that something might be wrong somewhere, but a clear understanding of how, when and where to act in case an issue comes up. In sincerity, a risk is often concealed by incomplete analysis (Van der Vegt et al., 2015), false targets, unclear focusing and lack of appropriate communication and confrontation of risk solutions with reliable partners.
Strategies to manage risks typically involve avoiding them (Domokos et al., 2015), alleviating their negative effect, and retaining some or the potential threat consequences. Risk management is involved with many areas that should be given priority in every management aspect. Key areas of risk management include, enterprise risk management, risk management in project management, health-related risks, risk management involves mega structures and natural resources, risk management of information technology among others.
Therefore, risk is a major uncertainty in any organization and, therefore, these organizations will focus more on ways of identifying such risks and managing them before they largely affect them. The ability to manage these risks will enable these organizations to act with confidence in future while making decisions, since the knowledge of the risks they are facing will provide them with viable options on how they can best deal with any such potential threats (Zhou et al., 2008).
Risk Management Tools
Risk management tools allow planners to address clearly risks by recognizing and generating metrics (Zhou et al., 2008), parameterizing, ranking and coming up with responses and finally being able to track the very risk. These activities without tools and appropriate techniques, documentation and information system will prove to be very difficult to track in one way or the other. A guileless risk management tools will make it easy for the documentation while the sophisticated ones will give a visual display of such threats as they occur. Some progressive risk management tools that are intended for the air force are able to aggregate some risks into an intelligible representation, an essential cutting edge to technological expertise.
Some of the examples of tools for risk assessment are many due to the fact that new ones are being developed every day. For example, the Altova Meta Team is a tool that is vital in giving an outline that is needed for the management of risk activities. It is an online tool important in project management, collaborative decision making, and a team management processes. The capital asset pricing model is important in establishing the anticipated rate of return of an asset; especially, when that asset is added to an already devised portfolio by basing it on the non-diversifiable risk. Event chain methodology is a procedure that involves managing risks and uncertainties that might have a detriment on the project schedules. Another important tool is the RIMS Risk Maturity model specifically for the enterprise risk management and consists of about twenty five competency drivers for seven attributes that are used to develop an ERM’s value and utility within a given organization. Risk Radar Enterprise (RRE), is also a very important tool which is a web-based application for an enterprise-wide program and project level risk management across the project management domain. It provides an effective management and communication of project cost, schedule, technical, and performance risks to a project within a common flexible and scalable enterprise context. The field of risk management tools is very wide and the one discussed above are just but examples of such tools with a wide collection not mentioned.
Risk management is a field where various models consist of probability and impacts that are central to analysis and comprehension of every problem and outcome. Figuring out an individual risk may presents a challenge since a number of likelihood can contribute to the probability of a risk issue. On the other hand, impacts can be measured in various ways, such as cost, time, events, for example, a catastrophe, state of the market and other dimensions. The major concern is the unavailability of a single strategy and tool that can consider a multiple risks and their outcomes and how they can influence one another.
There are several criteria to give consideration when selecting a risk management and analysis tool. The prerequisite criterion would be to confirm whether the tool is aligned with the analysis objective. Confirmation is to be made to ascertain whether the tool supports the analysis that an organization is thriving to achieve (Domokos et al, 2015). It should go further to ascertain whether the organization is in need to implement an ongoing risk process or just a one-time analysis. The second criterion will involve whether the tool supports the much-anticipated information on decision making, and the other area being the accessibility and availability of data for the tools analysis. Confirmation is vital on accessibility since it must be available to all users and stakeholders by evaluating whether the tool can be located where all the necessary personnel can easily access it. The last criteria will be a level of detail and the ease of integration with other program management systems. On the level of detail, the tool must be detailed enough since this will make it easy towards support to decision making (Van der Vegt et al., 2015). On the other hand, the tool should provide an easy way of integration with other program management since in an organisational set-up, there are several systems that will need to run concurrently.
Whether a manager is working in a systems-of-systems, multiple-program, or in a single-program environment, several tools and techniques can assist one to make a paradigm shifts to a systematic approach to risk management. The underlying principle of a risk analysis system tool is to analyze a system as a whole instead of decomposing to subsections and then carrying out analysis separately (Van der Vegt et al., 2015). It therefore, means that the main goal of a risk analysis is to identify a set of factors that gives a strong indication towards the outcome. These approaches of risk analysis are imperative in that they define small sets of factors that can be applied in the assessment of a system and investigate whether it is in the track so as to provide the much-needed aims and goals.
Just as mentioned earlier, risk management tools back the putting into practice and the execution of a program risk management in a given circumstance of analysis. Risk analysis and administration tools serve a multiple purpose and they come in different sizes and forms that are unambiguous to the task in question. Therefore, each specialized risk analysis and management area has developed a tool to support a specific objective, and they come with various levels of development. Before selecting a tool to use, it is vital for every organization to define carefully the risk analysis and management process beforehand (Domokos et al., 2015). All in all, the chosen tool must be able to support the required process for which it is fit in achieving.
Risk Management Information Systems
The risk management information system is an information arrangement that is helpful in associating the value of claims, policy, and exposure of data after which it provides the tracking and the management reporting capabilities. After that, it enables the user to monitor and control the entire cost that is involved with of risk management. Tsohou et al., (2006) asserts that risk managers rely on risk management information system to enable them assess risk and also to make it easy for improving their risk management programs across the organization.
With respect to information system, risk is the potential harm that may arise from present processes or some future anticipated events (Zhou, Vasconcelos & Nunes, 2008). From the information technology perspective, risk management is the process of proper understanding and reacting to factors failure in the concealment, reliability or lack of an information system process. Therefore, IT security risk is the damage that can subject a process or the related information occasioning from some resolute or accidental that can present at negative impacts to a process or the related facts. A manager must be knawladgeable in the computereised management information system that allows the manupualtion of claims, loss control, and other types of information that can assist the entire management in making descision.
In essence, the management of risk information is the key to the success of any risk management effort regardless of the size of an organization since all of them faces risks that are interrelated. The risk management information systems (RMIS) are beneficial in the support expected advice, and a cheaper information management solutions which grows around key processes such as risk identification, assessment, control and eventually financing. Typically, RMIS consolidates information related to insurance by primarily applying the casualty claims to the loss of data systems. The information is vital in the management of individual claims, classifying trends (Tsohou et al., 2006), marketing an insurance program, forecasting of losses and the study of the internal loss information communication within the organization of a client in question. RIMS may also provide the tracking and the management reporting options that can make it easy for an individual to monitor and control the overall cost in a proficient and economical manner.
Risk Management Intranets
Intranets are the most efficient and effective ways of communicating and storing knowledge for boosting employees’ productivity within an organization. Of late, there has been a growing acquisition of intranet by several organizations (Pinto et al., 2006) which are loaded with financial data, and other information concerning employees. Due to high risks that these intranets face from employees and individuals who do not follow the protection and compliance rules, there has been an increase in their management. Therefore, it is essential to monitor and provide management for content within an intranet in an automated and reliable way by keenly understanding the internet environment within the organization. Furthermore, it is significant to reduce the risks that are associated with the ease of accessing the sensitive content at all cost by use of appropriate risk management tool.
Threat modeling for an intranet can be very instrumental in identifying the rate of any threat that an organizational intranet is subjected to. In a web based application security, the threat modeling is the methodical identification and rating any passive threat that is most likely to impact an organizational intranet. The task of threat modeling is completed for the purpose of comprehending the associated risks that applies to intranet as a whole. The understanding and identification of threats and providing proper countermeasures are some of the very essential tasks that encompass the risk management system for intranets (Pinto et al., 2006).
Since many organizations have developed an intranet for use by staff that can cover the use of risk communication information, there has been tremendous risk mitigation to the effect. An information can be provided on the intranet about a nonspecific risk assessment that have been undertaken and the various control measures that are suitable to comply with in such management. Besides that, the intranet can also be used for agent information concerning a risk as well as giving updates that are concerned with risk assessments, the control measures in place and the current level of any anticipated threat.
The main aim of comprehending a risk map is to help an organization to expand its risk profile and appetite, make clear the thinking on the nature and impact of threats (Colletaz, Hurlin & Pérignon, 2012), and to come up with the best way to better improve its risk assessment model. In an enterprise, a risk is usually given a representation of a matrix, and the graphical presentation will show the likelihood of a risk occurring in which it is plotted on the X-axis while that of the impact is indicated on the Y-axis. It always gives a comprehensive nature of risks and the best way to avert them before they adversely affecting an organization.
Risk map best illustrates the risk likelihood and magnitude making their production be in any form, and therefore, whichever the production format, risk maps is a very valuable tool for individuals who are concerned with the risk management within an organization. The use of risk matrix to provide a good illustration of the risk magnitude and likelihood is an important risk management tool (Colletaz, Hurlin & Pérignon, 2012). The risk matrix can be used to plot the nature of an individual risks so that an organization can prioritize the risk as an acceptable one according to their capacity, or they can do away with it. In an organization, and in a situation where it is dispersed geographically and certain risks prevails some geographical areas, the illustration of risk can be indicated by the use of heat map, which involves the use of different colors to show the risk levels of an individual department or section that are exposed.
Value at Risk Analysis
Influential investors are always on the reaching end for contemporary risk management tools that can assist them in addressing various shortcomings in estimating risks that are capable of leaving them exposed in the financial markets crisis. To alleviate the systematic risk management, some of these people have taken up the initiative of accepting these new tools even though they have their limitations when in use (Milos, 2011).
Value at risk is a statistical method for measuring and quantifying the level of financial risk within an organization or an investment portfolio that is to be undertaken over a given time frame. In most cases, the value of risk analysis is used by managers so as to measure the level of risk that a firm faces (Zheng, 2006) from an investment that it is to undertake. Managers must ensure that the risk is not taken beyond the level that cannot be absorbed or that which shows a probable result. Value at risk, therefore, measures three variables such as the quantity of the potential loss, the probabilistic nature of the amount of loss, and the specific time frame.
Value at risk is always a frequent constituent to a number of financial analysis and evaluation programs that are used for investment analysis and extenuation. For instance, one can rapidly compute value at risk of a selection on Bloomberg after entering the holdings and setting some few parameters within it. The process is so simple that it does not require somebody who is IT guru to practice since the program takes the historical information of securities in the portfolio and does all the computation. Value at Risk is an analysis that is applicable to stocks and even currencies or any other assets that have price tags attached to them. Financial institutions love it since they can easily do a comparison on profitability and risk of different units (Zheng, 2006) after which they can allocate risk, an approach otherwise known as risk budgeting.
Natural occurrence and other happenings such as terrorism can cripple the financial viability of an organization to a halt if not well planned or assessed. Fortunately, these occurrences are rare and it is because of this that makes the estimation of any resulting loss to be difficult (Born & Martin, 2006). Therefore, organizations willing to make appropriate business decisions from some historical information concerning these natural happenings cannot come up with the best risk management strategy which can avert the projected future losses.
Catastrophe modeling is a risk management tool that employs the use of computer technology so as to aid insurers, businesses, government agencies to better assess the potential loss that might results from natural and other man made causes. It is one of the many tools that are available to insurers in the risk management toolbox when they are anticipating future losses and preparation (Li & Powers, 2007). Insurers, for example, uses catastrophe modeling as a tool for both the underwriting and pricing strategy since it accesses the risk in the portfolio exposures. Participants in the capital markets, for example, those in the catastrophe bond investments and other investment banks use these models so as to aid in the pricing and structuring of catastrophe bonds.
In the recent past, model outputs have increasingly been imperative part of catastrophe analysis that have been conducted by number of rating agencies in the process of assessing the financial strength of insurance industries. Catastrophe modeling will, therefore isolate the extent of a likelihood of an occurrence (Born & Martin, 2006) of a specific natural disasters in place after which it provides an estimate of the extent of losses that might be anticipated. Therefore, in providing the analysis, the model has four components: hazard, inventory, vulnerability and loss which are key to outcome interpretation. In this dynamic landscape, catastrophe model is vital since it will be able to combine the scientific and engineering principles, technical and financial expertise, to help most industry participants and other agencies to better appreciate and manage their catastrophe exposure.
Risk management tools are vital components of risk management since they allow risk managers to explicitly address uncertainties by identifying and generating metrics, parameterizing, prioritizing, and coming up with responses while at the same time be able to truck risk. These activities, just as mentioned are very hard to track without tools and procedures, documentation and appropriate information system. The need for a sound risk management has been of influence especially after the recession of 2008 financial environment. The main challenge from hence had been for the risk managers and other business players’ ability to detect a wrongly specified risk models that would not lead to actual risk misrepresentation. Therefore, while the area mentioned are just but some tools in in the risk management tool box, appropriate combination will aid in the proper risk management within an organization.
Born, P., & Martin, W. (2006). Catastrophe Modeling in the Classroom. Risk Management and Insurance Review, 9(2), 219.
Colletaz, G., Hurlin, C., & Pérignon, C. (2012). The risk map: A new tool for validating risk models. St. Louis: Federal Reserve Bank of St Louis. Retrieved from http://search.proquest.com/docview/1698409084?accountid=45049
Domokos, L., Nyéki, M., Jakovác, K., Németh, E., & Hatvani, C. (2015). Risk Analysis and Risk Management in the Public Sector and in Public Auditing. Public Finance Quarterly (0031-496X), 60(1), 7-28.
Li, M., & Powers, I. Y. (2007). The Role of Catastrophe Modeling in Insurance Rating. Risk Management, 54(10), 40-45.
Milos, E. (2011). Using the value at risk method in estimation of investment risk in the metallurgical sector companies. E-Finanse, 7 (1)
Pinto, C. A., Arora, A., Hall, D., & Schmitz, E. (2006). Challenges to Sustainable Risk Management: Case Example in Information Network Security. Engineering Management Journal, 18(1), 17-23.
Tsohou, A., Karyda, M., Kokolakis, S., & Kiountouzis, E. (2006). Formulating information systems risk management strategies through cultural theory. Information Management & Computer Security, 14(3), 198-217.
Van der Vegt, G. S., Essens, P., Wahlström, M., & George, G. (2015, August). Managing Risk and Resilience. Academy of Management Journal. pp. 971-980.
Zheng, X. (2006). Modeling and simulation of value-at-risk in the financial market area (Order No. 3218995). Available from ABI/INFORM Complete. (305317407). Retrieved from http://search.proquest.com/docview/305317407?accountid=45049
Zhou, L., Vasconcelos, A., & Nunes, M. (2008). Supporting decision making in risk management through an evidence-based information systems project risk checklist. Information Management & Computer Security, 16(2), 166-186.
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