What are the Essential Techniques of Risk Management?
There are five basic techniques of risk management:
• Avoidance
• Retention
• Spreading
• Loss Prevention and Reduction
• Transfer (through Insurance and Contracts)
Avoidance: Many times it is not possible to completely avoid risk but the possibility should not
be overlooked. For example, at the height of a thunderstorm, Physical Plant may not release
vehicles for travel until the weather begins to clear, thus avoiding the risk of auto accidents
during severe weather. Some buildings on campus have had repeated water problems in some
areas. By not allowing storage of records or supplies in those areas, some water damage claims
may be avoided.
Retention: At times, based on the likely frequency and severity of the risks presented, retaining
the risk or a portion of the risk may be cost-effective even though other methods of handling the
risk are available. For example, the University retains the risk of loss to fences, signs, gates and
light poles because of the difficulty of enumerating and evaluating all of these types of
structures. When losses occur, the cost of repairs is absorbed by the campus maintenance budget,
except for those situations involving the negligence of a third party. Although insurance is
available, the University retains the risk of loss to most University personal property.
Spreading: It is possible to spread the risk of loss to property and persons. Duplication of
records and documents and then storing the duplicate copies in a different location is an example
of spreading risk. A small fire in a single room can destroy the entire records of a department's
operations. Placing people in a large number of buildings instead of a single facility will help
spread the risk of potential loss of life or injury.
Loss Prevention and Reduction: When risk cannot be avoided, the effect of loss can often be
minimized in terms of frequency and severity. For example, Risk Management encourages the
use of security devices on certain audio visual equipment to reduce the risk of theft. The
University requires the purchase of health insurance by students who are studying abroad, so that
they might avoid the risk of financial difficulty, should they incur medical expenses in another
country.
Transfer: In some cases risk can be transferred to others, usually by contract. When outside
organizations use University facilities for public events, they must provide evidence of insurance
and name the University as an additional insured under their policy, thereby transferring the risk
of the event from the University to the facility user. The purchase of insurance is also referred to
as a risk transfer since the policy actually shifts the financial risk of loss, contractually, from the
insured entity to the insurance company. Insurance should be the last option and used only after
all other techniques have been evaluated.
Contracts: Often vendors and service providers will attempt through a contract to release
themselves from all liability for their actions relating to the contract. These are often referred to
as "hold harmless or indemnification" clauses. Due to the complexity of interpreting these
provisions, the President has delegated contracting authority for the University solely to
staff in Contracts & Procurement. The Office of University Risk Management reviews
contracts and agreements as requested by Contracts & Procurement to identify and assess risks,
evaluate insurance standards, and review hold harmless and indemnification provisions. The
Chancellor's Office requires that the University obtain in most instances not only a Certificate of
Insurance, but also an Endorsement. Collecting these documents is often the most time
consuming aspect of the contracting process.
WHAT ARE THE ESSENTIAL TOOLS OF RISK MANAGEMENT?
Risk identification and assessment should be part of the planning and development of all
department and unit programs or activities. To assess the risks posed by a program or activity,
take the following steps:
1. Identify the tasks associated with the program or activity. For example, the tasks
associated with conducting a lab experiment might include traveling to an off-site
location, preparing the experiment, conducting the experiment, cleaning up the
experiment and disposing any waste.
2. Identify the hazards associated with each task. A thorough identification of the tasks
involved and the hazards they present is very important. Risks that aren't identified
cannot be managed! For example, hazards related to preparing the experiment might
include improper set up and lack of appropriate equipment.
3. Evaluate and select risk management techniques. The goal is to conduct the program or
activity in such a way as to reduce the likelihood that something will go wrong and/or
reduce the severity of any losses if something does go wrong. For example, the hazards
related to preparing the experiment might be addressed through training and supervision,
creating several different experiment stations so that not all of the students are working at
the same station, and bringing extra equipment.
4. Assess the risks associated with the program or activity with the selected risk controls or
transfers in place.
5. Determine whether to modify or proceed with the program or activity based on the risk
assessment.
6. Implement the selected risk management techniques and monitor the results. Designating
who will implement the selected risk management measures and setting a time table for
completion of those tasks is very important
7. "Frequency" and "severity"are used to measure the risk remaining after appropriate risk
management techniques have been implemented.
o Activities or programs that include tasks that pose a high severity of loss, i.e.
major injuries or death, significant property damage, significant operational
interruptions, should be avoided if the frequency or likelihood of a loss occurs
regularly or often. Activities with a high severity of loss but a moderate or low
frequency of loss must at the least be well-supervised and require participants to
sign releases of liability.
o Most of the programs and activities of the University include tasks that pose a
moderate severity of loss, i.e. minor injuries, property damage or operational
interruptions, and a moderate or low frequency of loss. Nonetheless, these
activities should be well-planned and have adequate supervision.
o Activities or programs that include a negligible severity of loss, i.e. injuries that
only require first aid or minor medical treatment and little or no property damage,
and little likelihood of loss require very little risk management.
The essential tools of risk management and their significance in ensuring project success.
Risk Identification: The first step in risk management is identifying potential risks that may
affect the project. Several tools facilitate this process, including brainstorming sessions,
checklists, and risk registers. Brainstorming sessions involve gathering input from project team
members, stakeholders, and subject matter experts to identify risks based on their knowledge and
experience. Checklists serve as a systematic guide to identify common risks associated with the
project type or industry. Risk registers provide a structured framework to document identified
risks, their descriptions, and initial assessments.
Risk Assessment: Once risks are identified, they need to be assessed to determine their potential
impact and likelihood of occurrence. Two essential tools for risk assessment are probability-
impact matrices and qualitative risk analysis. Probability-impact matrices allow project managers
to assign a probability and impact rating to each identified risk, enabling them to prioritize risks
based on their severity. Qualitative risk analysis involves evaluating risks qualitatively based on
predefined criteria such as likelihood, consequences, and risk ratings. These tools aid in
identifying high-priority risks that require further analysis and response planning.
Risk Analysis: Risk analysis involves a detailed examination of identified risks to understand
their root causes, potential consequences, and interdependencies. Two common tools for risk
analysis are SWOT analysis and cause and effect diagrams. SWOT analysis assesses the project's
strengths, weaknesses, opportunities, and threats, enabling project managers to identify internal
and external factors that may impact project success. Cause and effect diagrams, also known as
fishbone or Ishikawa diagrams, help identify potential causes of risks by visualizing the
relationships between various factors. These tools enhance the understanding of risks, facilitating
the development of effective risk response strategies.
Risk Response Planning: Risk response planning involves developing strategies to address
identified risks. Key tools for risk response planning include risk avoidance, risk mitigation, risk
transfer, and risk acceptance. Risk avoidance aims to eliminate the risk by altering project
parameters or avoiding specific activities that pose significant risks. Risk mitigation involves
implementing measures to reduce the likelihood or impact of identified risks. Risk transfer
involves shifting the risk to a third party, such as through insurance or contracts. Risk acceptance
acknowledges that certain risks cannot be fully mitigated and establishes contingency plans to
address them if they materialize. These tools enable project managers to develop proactive risk
response strategies tailored to each identified risk.
Risk Monitoring and Control: Risk monitoring and control are essential for tracking identified
risks, assessing their status, and implementing appropriate control measures. Risk registers,
project status updates, and progress reports are valuable tools for ongoing risk monitoring.
Regular communication and feedback loops with stakeholders and project team members
facilitate the timely identification of emerging risks and the evaluation of existing risks. By
implementing predefined triggers and contingency plans, project managers can effectively
control risks and minimize their impact on project objectives.
Conclusion: Effective risk management is vital for project success, and utilizing the essential
tools of risk management enables project managers to identify, assess, and mitigate potential
risks. The tools of risk identification, assessment, analysis, response planning, and monitoring
and control provide a systematic approach to managing uncertainties throughout the project
lifecycle. By leveraging these tools, project managers can enhance their ability to anticipate and
proactively address risks, ensuring the successful delivery of projects within defined timelines,
budgets, and stakeholder expectations.
