Risk Management Discussion
Respond to student. Please make sure to use apa format and required word count is 100. Please use scholarly sources, cite sources and required sources 3.
Original question: Begin your discussion post by choosing two out of four reasons for quantifying risk, and describe your understanding of them based on content found on page 220. Then, compare your two reasons with the alternative methods found in Exhibit 13.2. Which alternative methods might you consider when assessing risk in your organization and why?
Based on your understanding of financial, market, operational, and credit risk management, assess your organization’s performance in these areas of assessment. Does the organization manage these risks well? Why or why not? Give specific examples regarding your opinions.
Student 1 RaeBethel
Risk quantification is one of the two approaches in risk analysis for an organization. Quantification risk is the second step of project risk management which is a process to evaluate identified risks to produce data that can be used in deciding a response to corresponding risks. The objective of project risk quantification for an organization is to prepare contingencies in terms of costs, time, or human resources and prioritize them. It is a process of evaluating the risks that have been identified in the first step of risk analysis, qualitative, and develops the data that will be needed for making decisions as to what should be done about the risks. “Assessing the risk is of crucial importance because risks can evolve into disastrous outcomes for human beings and the environment. The aim of quantifying and analyzing these risks is to limit such outcomes by introducing various precautionary measures” (Abdo, & Flaus, 2016, p. 5862).
There are four reasons for quantifying risks. In this discussion, two reasons will be described. First decisions must be made to determine which risks are most important. This is a process of evaluating the risks that have been identified and developing the data that will be needed for making decisions as to what should be done about them and concentrate on those risks which should range from most important to least important, (Fraser, & Simkins, 2010, p. 220). Once a risk is identified then it is analyzed in terms of probability of occurrence and impact that it could have on the outcome. Once probabilities are calculated, a criterion for the likelihood of all the events is defined. For example, if a specific event may occur in exceptional circumstances, like for example less than three percent chance of occurrence, then its likelihood can be assigned as rare/least important.
The second reason is to make a decision on whether to spend money on controlling the risk. Expected monetary value is a product of two numbers, risk probability value and risk event value which is an estimate of loss or gain that will be incurred if the risk event occurs (Fraser, & Simkins, 2010, p. 220). These values can be positive and negative resulting in gain or loss respectively. The determined risks from step one help to estimate the amount required to manage all identified risks. Second, establishing the risk probability value and risk event value helps an organization in selecting the choice of risk to manage by selecting the option with the minimum value.
The two quantified risk reasons listed above will be compared with the alternative methods found in the text Exhibit 13.2. The alternatives methods that might be considered when assessing risk in my organization are active management on the largest risks and the high, medium, and low classification of risks. Because my organization is small in numbers of staff it would be best to concentrate on initial effective management of key risk to prevent spreading our management efforts to thin which might lead to being less effective at controlling our risks. Also, with my organization being small in numbers we could effectively use the alternative of the high, medium, and low classification of risks because the risk analysis would likely be done mainly by one person. However, I would have to say that while using this alternative method if a risk is to be tackled at all levels of the organization then other people would be involved.
Based on my understanding of financial, market, operational, and credit risk management, I assess my organization’s performance in these areas as managing these areas quite well. In assessing my organization on the impact, likelihood, and control of a risk in the above performance areas we are able to control independently to calculate more objective residual risks, and are able to provide an easy way to understand risk levels on a numeric scale that provides understanding and direction needed. Example: Quantification of Risk on Pre-mitigation Basis:• Once we develop the understanding of the Risk, we can estimate the impact of that particular risk on our project.• Post understanding, we identify the probable mitigation quantifications which will reduce its impact by directly hitting quantification the source of risk.
Our strategic decisions can then be made to prioritize risk mitigation time and dollars. Example: Quantification of Risk on Post-mitigation Basis • We re-estimate the impact of risk post-implementation of all actions that have been planned for risk mitigation to check whether they are properly implemented or not.• In case we found any gap in the implementation of planned measures or found them less effective, we re-plan and re-implement new have.
A firm understandable example would be the financial loss of a property not being processed for “Rent Ready” in a timely and correct manner. The correct manner is considered in my organization as controlling the safety hazards (mole, mildew, and lead paint) and electrical or plumbing repairs done correctly to prevent fire and flooding of the property as well as controlling the time frame to place back on the rental market. In construction and real estate, “risk analysis can be described as a systematic methodology and ongoing process by which occurrences that may substantially affect the end product can be identified, quantified, modeled, managed and monitored” (Nalewaik, 2005, p. 07.1).
Student 2 Juanita
According to Turnbaugh (2005), quantifying risk requires that a “risk indicator scorecard and evaluation procedure” be created to quantify potential risks (p. 275). Fraser and Simkins (2010), presents four reasons to explain why it is necessary to quantify risk. First, it allows organizations to identify and prioritize risks. Second, so they may decide how to allocate resources towards risk control. Third, the organization will assess how the risk impacts the economy. Lastly, is to evaluate how much a risk contributes to the organization’s total risks. Of these four, my understanding of the first risk is that the organizations must identify and list each risk in rank order from least to most important. This will allow organizations to focus on risks that need immediate attention. Likewise, the second risk that I have chosen, my understanding is that an organization should evaluate if it is beneficial to allocate resources towards risk control and ascertain if this is useful for risk reduction (Fraser & Simkins, 2010).
When considering risk within my organizations, I presume that method four, statistical analysis. According to Kallman, statistical analysis is useful for “forecasting mean values and standard deviations” (p. 58). Being that the organization that I work for is a large hospital system that runs the risk of having patient information comprised, it is necessary to consider various scenarios and assess the probability of the risk occurring (Fraser & Simkins, 2010). I feel that my organization does a good job of managing its financial, market, operational, and credit risk management. For example, when considering operational risk management, which is a new risk category, according to Yang, Hsu, Sarker, & Lee (2017), within our department is a dedicated IT staff member, who is assigned to monitor the departments various operating systems and identify any potential risks that may impact daily operations or the organization as a whole.