Risk Management - ACostE. Kate Boothroyd FIRM Director, KB Risk Consulting Limited. What does the IRM do exactly?. Provide education and training for professionals in risk management. Provide a professional support network for those working in risk management.
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Risk Management - ACostE Kate Boothroyd FIRM Director, KB Risk Consulting Limited
What does the IRM do exactly? Provide education and training for professionals in risk management Provide a professional support network for those working in risk management Promote technical and ethical good practice in risk management
What is risk and risk management? • Risk can be defined as the combination of the probability of an event and its consequences (ISO/IEC Guide 73) • In all types of undertaking, there is the potential for events and consequences that constitute opportunities for benefit (upside) or threats to success (downside). • Risk Management is increasingly recognised as being concerned with both positive and negative aspects of risk. (IRM Risk Standard 2002)
Why Is It Used? • Key tool towards delivering your business/project objectives successfully • Greater awareness of the key risks – fewer surprises • Intelligent allocation of risk • Aid decision making process • Common sense • Changing market • Mandatory procedures • Corporate governance - Stock Exchange Listing Rules / good business practice
What is most of interest to ACostE? • Not just identification of risks – both threats and opportunities • Better understanding of objectives – what’s important • Planning for risk management so appropriate resources and approach in place • Assessment • Qualitative • Quantitative - cost and time modelling through life • Responses appropriately accounted for • Monitoring and reviewing – end life forecasting
Qualitative assessment 5 Consider both threat and opportunity 4 Probability 3 2 1 -5 -4 -3 -2 -1 1 2 3 4 5 Impact/Opportunities Impact/Threats Threats Opportunities Very High Very High High High Medium Medium Low Low Very Low Very Low
Quantitative assessment • Aims to: • Quantify the effect of risks • Predict likely project outcomes • Identify options • how to respond • Balance response against potential cost • Focus management attention • priority areas
Contingency Contingency is usually arrived from the combination of the following two forms: - • Estimating Uncertainty: uncertainty associated with possible performance for project or operational work scope in terms of cost and schedule duration. • Discrete risk: an event, circumstance or condition that may or may not occur, which could influence delivery of project or operational work scope
Draw Up Base Programme and Estimate • Establish the base programme and estimate before risk assessment • All impact assessments must reflect the current baseline • Assumptions, exclusions, allowances • Constraints • Note that part of a risk may already be covered within a base estimate or programme • Response strategies / mitigation actions must be reflected in the base plan – this provides funding for risks should they impact. • Must map discrete risks across correctly to the base plan – not all risks span all phases • If this is not done correctly in development of the proposal then funding for the Project will be incorrect
Caveats • May not be required, appropriate or affordable • Most useful when most difficult • Difficulty in estimating uncertainty • Wags and swags • Not all risks need to be priced in a contingency - probably 80% can be managed, often by processes that are already in place • Risk management is NOT there to price you out of every project • It should give you the information to help you decide: • How much to include to pay for the risks you are expected to take • How much to include in the base plan for management actions • Whether you want to submit a proposal for the job at all!
Summary • Recognise the need to ensure that it is fit for purpose • Recognise some of the peculiarities in implementation in different industries • Remember that it is one tool of many in the management toolbox • Understand that risk management isn’t there to price you out of every project • Ensure the right people have been involved in the process • Ensure the process has been handed over properly at each stage • Ensure the process is resourced properly from start to finish • Remember that risk management is there to help you make better decisions, so ensure you use it in the decision making process • Remember that if the process is paid lip service to, it will fail!