All About Insurance: Insurance is a Risk Management technique. Risk Management Plan
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All About Insurance: Insurance is a Risk Management technique. Risk Management Plan
As you already knew about the Process of Risk Management, here you should know more about the Risk Management Plan...
A Risk Management Plan is a document prepared by a project manager to foresee risks, to estimate the impacts, and to create response plans to mitigate them. It also consists of the risk assessment matrix.
A risk is defined as "an uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives." Risk is inherent with any project, and project managers should assess risks continually and develop plans to address them. The risk management plan contains an analysis of likely risks with both high and low impact, as well as mitigation strategies to help the project avoid being derailed should common problems arise. Risk management plans should be periodically reviewed by the project team in order to avoid having the analysis become stale and not reflective of actual potential project risks.
Most critically, risk management plans include a risk strategy. Broadly, there are four potential strategies, with numerous variations. Projects may choose to:
* Accept risk; simply take the chance that the negative impact will be incurred
* Avoid risk; changing plans in order to prevent the problem from arising
* Mitigate risk; lessening its impact through intermediate steps
* Transfer risk; outsource risk to a capable third party that can manage the outcome
Risk management plans often include matrices.
What is Risk Matrix?
A Risk is the amount of harm that can be expected to occur during a given time period due to specific harm event (e.g., an accident). Statistically, the level of risk can be calculated as the product of the probability that harm occurs (e.g., that an accident happens) multiplied by the severity of that harm (i.e., the average amount of harm or more conservatively the maximum credible amount of harm). In practice, the amount of risk is usually categorized into a small number of levels because neither the probability nor harm severity can typically be estimated with accuracy and precision.
A Risk Matrix is a matrix that is used during Risk Assessment to define the various levels of risk as the product of the harm probability categories and harm severity categories.
Although many standard risk matrices exist in different contexts (US DoD, NASA, ISO) , individual projects and organizations may need to create their own or tailor an existing risk matrix.
For example, the harm severity can be categorized as:
* Catastrophic - Multiple Deaths
* Critical - One Death or Multiple Severe Injuries
* Marginal - One Severe Injury or Multiple Minor Injuries
* Negligible - One Minor Injury
The probability of harm occuring might be categorized as 'Certain', 'Likely', 'Possible', 'Unlikely' and 'Rare'. However it must be considered that very low probabilities may not be very reliable.
The resulting Risk Matrix could be :
| Negligible | Marginal | Critical | Catastrophic | |
|---|---|---|---|---|
| Certain | High | High | Extreme | Extreme |
| Likely | Moderate | High | High | Extreme |
| Possible | Low | Moderate | High | Extreme |
| Unlikely | Low | Low | Moderate | Extreme |
| Rare | Low | Low | Moderate | High |
Problems with Risk Matrix:
In his article 'What's Wrong with Risk Matrices?' , Tony Cox argues that risk matrices experience several problematic mathematical features making it harder to assess risks. These are:
* Poor Resolution. Typical risk matrices can correctly and unambiguously compare only a small fraction (e.g., less than 10%) of randomly selected pairs of hazards. They can assign identical ratings to quantitatively very different risks (“range compression”).
* Errors. Risk matrices can mistakenly assign higher qualitative ratings to quantitatively smaller risks. For risks with negatively correlated frequencies and severities, they can be “worse than useless,” leading to worse-than-random decisions.
* Suboptimal Resource Allocation. Effective allocation of resources to risk-reducing countermeasures cannot be based on the categories provided by risk matrices.
* Ambiguous Inputs and Outputs. Categorizations of severity cannot be made objectively for uncertain consequences. Inputs to risk matrices (e.g., frequency and severity categorizations) and resulting outputs (i.e., risk ratings) require subjective interpretation, and different users may obtain opposite ratings of the same quantitative risks. These limitations suggest that risk matrices should be used with caution, and only with careful explanations of embedded judgments.
What is Risk assessment?
Risk assessment is a step in a risk management procedure. Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat (also called hazard). Quantitative risk assessment requires calculations of two components of risk: R, the magnitude of the potential loss L, and the probability p, that the loss will occur. In all types of engineering of complex systems sophisticated risk assessments are often made within Safety engineering and Reliability engineering when it concerns threats to life, environment or machine functioning. The nuclear, aerospace, oil, rail and military industries have a long history of dealing with risk assessment. Also, medical, hospital, and food industries control risks and perform risk assessments on a continual basis. Methods for assessment of risk may differ between industries and whether it pertains to general financial decisions or environmental, ecological, or public health risk assessment.
For more understanding about Risk Management Plan, let's watch the videos relating to the Risk Management Plan:
Risk Management Plan:
Risk Management: Creating A Risk Management Plan:
This video explains how to create a client risk management plan in ClearRisk Manager.
ClearRisk Manager is the platform to build risk management plans, and the tools with which to implement them. Need a plan? We can help. Free plans available on the ClearRisk site (www.clearrisk.com)
Business Plans : Writing a Risk Management Plan:
A risk management plan is critical towards a company's business development, as it is a part of the business plan that details the risks of the business. Detail financial risks and risks about a customer base with help from an experienced businessman in this free video on planning a business.
Expert: John Niemira
Bio: John Niemira is a business professional who has been in the business industry for many years.
Filmmaker: Michael Burton
Webinar - Developing a Risk Management Plan:
March 24-25, 2010
Having a well-developed risk management plan demonstrates the health center's or clinic's commitment to managing risks and improving patient safety. The plan also articulates the goals of the risk management program and provides authority and responsibility to the risk manager and other individuals for program implementation. ECRI Institute's audio conference, "Developing a Risk Management Plan" provides an overview of the key elements of a risk management plan, steps to implementation, and monitoring for effectiveness.
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