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ARM 55

Chapter 1 - Introduction to Risk Assessment and Risk Treatment

Risk Assessment Provides information about uncertainties that affect a firm's ability to meet its objectives
Four Classifications of Risk Hazard, Operational, Financial and Strategic
Hazard Risk Arises from property, people, liability or personnel lloss exposures
Operational Risk Arises from people, processes, systems and controls of a firm
Financial Risk Arises from the effects of market forces on financial assets and liabilities
Strategic Risk Arises from social and economic trends that affect the firms objectivites
Risk Management Helps a firm to make and implement decisions to optimize its level of risk.
Effective Risk Management Results in improved governance, compliance with legal requirements and better identification of a firms opportunities and threats
The 3 Goals of Risk Assessment 1. To inform management of the firms risks. 2. To define how those risks affect the firm's ability to meets the company's objectives 3. To identify proper risk treatment options
Effective Risk Assessment requires the Risk Manager to have an understanding of 1. The firms risk appetite 2. The firms tisk tolerance 3. The risk managers own accountability within the process 4. The tools and techniques for assessing and treating risks
Risk Appetite The aggregate amount of risk a firm is willing to accept in pursuit of its goals
Risk Tolerance The amount of uncertainty that the firm can accept without threatening survival
Two Steps in the Risk Assessment Process Risk Identification and Risk Analysis
Risk Identification involves reviewing all facets of the internal and external environments to identify those events that can either help or hinder the firms achievement of its objectives
Risk Analysis Involves examining the identified risks and deciding on risk treatment options
Risk Map A graphical representation that compares the likelihood and impact/consequences of identified risks
5 Steps of ERM 1. Scan the Environment 2. Identify RIsks 3. Analyze Risks 4. Treat Risks 5. Monitor and assure
Questionnaires and Checklists Are among the easiest techniques to apply. They can be used as starting points for risk identification or as summaries following other more complicated results A- Easy to use D- Do not identify quantitative results
Workshops Are group discussions facilitated by risk management professionals who encourage brainstorming and follow-up discussions
Brainstorming A type of group problem-solving in which all participants make spontaneous contributions to the discussion
Delphi Technique Has a group of experts make independent projections through anonymous questionnaires
Cause and Effect Analysis Identifies all of the possible causes and sub-causes of an event 1. Fishbone Diagram 2. 5 Whys Approach Disadvantage - group can come to an agreement before fully identifying the reason behind
Failure Analysis Traces all of the causes of failure to identify areas for improvement 1. HAZOP 2. Fault Tree Analysis 3. Failure Mode and Effects Analysis
HAZOP- Hazard and Operability Studies use a team of experts who study a system or process to identify how failures can result in a hazard
FTA - Fault Tree Analysis Identifies a possibility system failure, constructs a logic tree of all possible events leading to that failure, connects all events with "and" or "or" gates and chooses control measures to close the gates
FMEA- Failure Mode and Effects Analysis Identifies possible component failure and constructs a logic tree to project its effects on system performance
Future States Analysis Seeks to identify future and emerging risks 1. Scenario Analysis 2. Monte Carlo Simulation
Scenario Analysis dentifies risks and projects how the current environment will be changed by emerging risks
Monte Carlo Simulation Is a computerized statistical model that stimulates the effects of uncertainty
Strategy Analysis Considers potential risks to the firm's long-term strategies 1. SWOT 2. PEST
SWOT- Strengths, Weaknesses, Opportunities and Threats Asses the firms external macroenvironment
Risk Treatment makes and implements decisions based on risk identification and risk analysis.
Goal of Risk Treatment 1.Evaluating each risk treatment option to determine if it leads to an acceptable level of residual risk 2. Selecting and implementing risk treatment options. 3. Measuring the effectiveness of each chosen option.
5 General Categories of Risk Management Techniques 1. Avoidance 2. Modification: Loss Prevention and Loss Reduction 3.Transfer 4. Retention 5. Exploitation
Accident Analysis Techniques - the direct cause of an accident is usually an unplanned release of energy that usually cannot be absorbed safelythe indirect or underlying cause of the accident is typically unsafe act or condition, the basic causes of most accidents include: poor manag
Change Analysis projects the effects of a proposed change or combination of changes on the safety and rehabilitation of an existing system Ex: Before changing a trucking fleet from gas to diesel engines, project
Job-Safety Analysis (JSA) Dissects a repetitive task into steps and identifies potential hazards for each step- focusing on human error. This technique is appropriate to repetitive human tasks performed in a stable environment
Domino Theory - Sequence of Events Holds that accidents result from human failings
Chain of Five Events (Domino) 1. Ancestry and Social Environment 2. Fault of a Person 3. Unsafe act or Physical Hazard 4. Accident 5. Injury - undesirable event Unsafe human acts are more frequent that unsafe conditions. Applies best to accidents directly involving employee
Technique of Operations Review (TOR) Holds that accidents result from management failures
Five Basic Principals of Risk ControlEnergy Transfer Theory Accidents/ Unsafe acts reveal mgmt system failuresCertain controllable circumstances produce severe injury.mgmt should manage safety like any othe function, by setting and achieving goals. mgmt procedures for effective accountability produce effective
holds that accidents will result from uncontrolled energy
Created by: emagargee



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