Page 15 - Risk Management Bulletin February 2024

RMAI BULLETIN FEBRUARY 2024

affect the entity and manage risks so that it is willing vary depending on the nature of the risks being man-
to accept risks to provide reasonable assurance about aged, the industry and objectives of the organization,
the achievement of the entity's objectives". and other considerations.

Objectives of Risk Management: Characteristics of risk management:

The primary objective of risk management is to pro- Below are some common characteristics of risk man-
tect and enhance: agement:
Y Ethics, values and a sense of belonging Y Risk management is a proactive process that in-
volves identifying and mitigating potential hazards
Y Tangible and intangible assets of the accounting before they impact the organization.
unit
Y Comprehensive: Effective risk management re-
Y Development of organizational culture
quires a holistic strategy that considers risks in all
Y Relationships and leadership areas of the organization, including operations,
Y Process efficiency and effectiveness finance, legal and compliance.
Y Strategic priorities require resources. Y Risk management is a systematic strategy for de-
tecting, analyzing and managing risks that includes
Y Satisfaction among stakeholders.
well-defined processes and procedures.
Y Risk management is an ongoing process that requires
Tools for risk management
regular monitoring and evaluation to ensure that
There are several tools available in the risk manage- risks are adequately managed over time.
ment process. Some common tools are:
Y Effective risk management requires an objective
Risk assessment matrix- A risk assessment matrix is a
strategy based on data and analysis rather than
method for determining the likelihood and potential
human biases or subjective judgments.
impact of identified risks.
Y Risk management requires coordination among
SWOT analysis: A strategic planning method for iden-
multiple stakeholders, including management,
tifying a company's strengths and weaknesses, oppor-
employees, consumers, suppliers, and others.
tunities and threats.
Y Embedded: Rather than being considered a stand-
Scenario analysis: A strategy for evaluating the likely alone activity, risk management should be inte-
impact of various situations on an organization. grated into the organization's broader strategy and
Risk registers: A thorough summary of all identified decision-making processes.
risks, including their likelihood, potential impact and
Overall, good risk management is characterized by a
proposed risk mitigation techniques.
proactive, comprehensive, systematic and continuous
Decision Trees: A visual tool for analysing different approach that involves stakeholder participation and
decision outcomes and the probability of each event is integrated into the organization's overall strategy
occur ring. and operations.
Monte Carlo Simulation: A statistical tool used to
model the effect of risk and uncertainty on organiza- Case Study 1: The Challenger space

tional performance. shuttle disaster:
Cost-benefit analysis - Cost-benefit analysis is a tool On January 28, 1986, the Challenger space shuttle
used to compare the costs and benefits of different risk exploded 73 seconds after liftoff, killing all seven crew
management strategies. members on board. The crew included five NASA as-
tronauts and two payload specialists, as well as Christa
These techniques can be used in tandem to assist or- McAuliffe, a high school teacher chosen to participate
ganizations in identifying, assessing and managing in the Teacher in Space programme.
potential risks as well as developing successful risk
management strategies. The specific tools used may A mix of technological and organisational shortcomings

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