BSBMGT401A: Topic 3 Make informed decisions
Make informed decisions
Reading 3: Managing risks
Reading for performance criteria:
3.3 Examine options and assess associated risks to determine preferred
course/s of action
Contents
What is risk management?
2
Benefits
2
The risk management process
Australian Standard for risk management
Communication and consultation
4
4
7
Reading 3: Managing risks
© NSW DET 2008
1
BSBMGT401A: Topic 3 Make informed decisions
What is risk management?
“Take calculated risks. That is quite different from being rash.”
General George S Patton 1885-1945
An important part of the decision-making process is risk identification,
assessment and management. Individuals and organisations make decisions
regarding risks every day. They might use a formally recognised,
documented process or go with the “sink-or-swim” approach. When the
stakes are high and the results of actions likely to affect many people – as
they often are in the business world – the latter approach is very ‘risky
business’.
Although many of us would benefit by analysing the risks we take in our
daily lives more effectively, the management of risk tends to be focused on
organisations. This is because the implications of poor risk management can
have significant impacts on a wider number of stakeholders as well as on
national and local economies. It’s also because the nature of risk within
organisations is far more complex that the simple tasks we have to manage
as individuals.
Risk management is therefore generally recognised internationally as a key
business process within both the private and public sectors. While risk
management may include the treatment of identified risks (risk treatment) it
is a broader and more strategic process.
Risk management involves applying skills, knowledge, and risk
management tools and techniques to all aspects and functions of an
organisation to reduce risks to an acceptable level while maximising
opportunities.
Benefits
Managing risks has the following specific benefits:
Greater control
Control of adverse events is enhanced by identifying and taking actions to
minimise their likelihood and reduce their effects.
Reading 3: Managing risks
© NSW DET 2008
2
BSBMGT401A: Topic 3 Make informed decisions
Greater confidence
People will have more confidence in their understanding of risks and their
capability to manage them. This also encourages the seeking of
opportunities as people feel safer to take ‘calculated risks’.
Improved planning, performance and effectiveness
Effective planning is facilitated by access to strategic information about the
organisation. This also enhances the organisation’s ability to seize
opportunities, mitigate negative outcomes, and to achieve better
performance and productivity.
Improved stakeholder relationships
Communication and consultation are essential processes in effective risk
management. The development of dialogue between the organisation and its
stakeholders increases mutual understanding of and insight into the wants,
needs and motivations of both parties.
Enhanced reputation
Organisations that are known to have a sound process for managing risk
tend to attract investors, lenders, suppliers and customers.
Accountability, assurance and governance
Through the demonstration and documentation of the risk management
approach, various parts of the organisation are focused on conforming to
requirements and enhanced performance.
Personal wellbeing
Generally, when we effectively manage personal risk we experience an
increase in our health and wellbeing.
Consider this:
The risks of success
“One of the first and most important lessons any successful Australian
businessperson learns is there is risk associated with every decision they
take. But one of the main reasons they become successful rather than
unsuccessful is because they understand there are even greater risks in not
taking them.”
Lee Forrest
Reading 3: Managing risks
© NSW DET 2008
3
BSBMGT401A: Topic 3 Make informed decisions
The risk management process
Sometimes it seems that there are as many models describing risk
management processes as there are books written about the subject. This can
become confusing. In the interests of simplicity and consistency with
accepted Australian practices, we will refer here to a process adapted from
the Australian/New Zealand Standard ‘Risk Management’ 4360:2004.
Australian Standard for risk management
The diagram on the following page represents the main elements of the risk
management process. They are outlined here and described in more detail in
the above reference:
a)
Establish the risk context
Establish the external, internal and risk management context in which the
rest of the process will take place. Criteria against which risk will be
evaluated should be established and the structure of the analysis defined.
b)
Identify risks
Identify where, when, why and how events could prevent, degrade, delay or
enhance the achievement of the objectives.
c)
Analyse risks
Identify and evaluate existing controls. Determine consequences and
likelihood and hence the level of risk. This analysis should consider the
range of potential consequences and how these could occur.
d)
Evaluate risks
Evaluate the estimated levels of risks against the pre-determined criteria.
Consider the potential benefits and adverse outcomes of treatment. Make
decisions about the extent and type of treatment and set priorities. If no
treatment is required, monitor and control the situation.
e)
Treat risks
Develop and implement specific cost-effective strategies and treatment
plans that maximise benefits and reduce potential costs.
Reading 3: Managing risks
© NSW DET 2008
4
BSBMGT401A: Topic 3 Make informed decisions
f)
Monitor and review
Each step of the process should be monitored and reviewed to enable
continuous improvement. Risks and treatment measures should be
monitored to ensure that changing conditions can be taken into account in
determining treatment measures and priorities.
Reading 3: Managing risks
© NSW DET 2008
5
BSBMGT401A: Topic 3 Make informed decisions
Reading 3: Managing risks
© NSW DET 2008
6
BSBMGT401A: Topic 3 Make informed decisions
For more information and some useful tools to help you identify and
manage the risks involved in your decisions you could refer to the following
websites:
www.riskdecisions.com – follow links on Home Page to ‘Articles’ for ‘True
Estimates Reduce Project Risk’, and White Papers for ‘Using Risk
Management for Strategic Advantage’
www.riskinstitute.org – follow links on home page to Publications, Tools,
Resources, to Risk Management, to Risk Management Starter Kit – and
many more
Communication and consultation
The importance of communication and consultation right through the risk
management process cannot be underestimated. Risk management is
enhanced by all parties understanding each other’s perspectives and, where
appropriate being actively involved in decision-making. People’s
understandings of risks are improved, the views of stakeholders are
considered, and all participants are aware of their roles and responsibilities.
Communication can be two-way or one-way depending on what you want to
achieve. There are times when one-way communication is required – when
information such as annual reports, meeting minutes, and newsletters are
provided. Where the goals of the communication include sharing
perspectives, beliefs, positions etc between different parties and between the
organisation and its stakeholders, the best type of communication is twoway.
Consultation involves two-way communication between stakeholders on an
issue prior to making a decision or determining a direction on a particular
issue. This makes risk management explicit and more soundly based, and
adds value to an organisation.
Reading 3: Managing risks
© NSW DET 2008
7