Basically, a risk analysis is the combined effort of: actuaries who are charged with the duty of identifying risks (past and present), the probability of loss, statistical data on losses, the effect of events and statistical studies and mathematical and theoretical probability of distribution of losses. With the advent of sophisticated tools and techniques, actuaries can now combine several of these tools and methods for the purpose of risk analysis. One important tool used for evaluating risks is the actuarial rating method or APR.
When you hear the term risk evaluation in your daily business activities, you may find that it has several meanings. To simplify it, you can say it is a method by which businesses evaluate various possibilities and evaluate potential risks involved in their specific line of business operations. It also involves the identification of risks and their mitigation. Thus, to give a better understanding of what it is and its value to businesses, we will be discussing some key terms associated with the subject matter.
Broadly speaking, there are two main functions of risk evaluation – risk identification and risk control. In case of risk identification, it is an aspect of a process by which organizations determine the likelihood of an adverse event happening. For instance, an organization might conduct a risk analysis to identify the likely cause of failure in a specific line of business operation. The identified factors then serve as the basis of determining what action needs to be taken and how to avoid or mitigate the negative impact on the organization. Similarly, in the case of risk control, it is a tool used to mitigate potential threats so as to prevent or remedy the damage, loss, or damage that would have otherwise occurred.
Risk identification is the first aspect of risk analysis. While it is true that risk identification is the first step of the process, it is not necessarily the last. It is important for organizations to continually assess risks because it is a continual process. Organizations continuously identify new risks, evaluate existing risks, evaluate new threats, and make adjustments to their risk assessments and management systems as the risks continue to change and grow. Thus, it is important to note that risk identification is not an activity that should be done once and then assumed to be done.
The second aspect of risk evaluation is risk assessment. It is the process by which an organization identifies and assesses the risks of an identified scenario or problem. As mentioned earlier, this assessment is continuous, meaning that it is done on a regular basis and the organization must regularly reassess its risk assessments and management systems as new threats emerge and risks are mitigated. Thus, it is important for the assessor, who is usually an independent consultant hired to perform risk assessments, to continuously monitor the progress of the process.
The third aspect of risk evaluation is risk treatment. In cases where the threat does not exist or is not yet acute, risk treatment involves devising a strategy to contain, manage, or eliminate the problem. For example, if the business does not currently face a threat of competitor infringement but does believe that it may in the future, it would be wise to prepare for such an issue by developing policies and procedures that would mitigate any such risk. Likewise, if the threat only represents a likely limitation but there are no policies or procedures in place to handle or mitigate that limitation, then there may be no need for risk treatment. But if a more severe threat is present but the business has a solid plan to deal with the risk (such as having a solid information and data security system) and the resources to implement that plan, then risk treatment becomes necessary.
The fourth aspect is the implementation of a coordinated approach. This is especially important when the organizations has adopted a risk management strategy. Such a strategy will involve the adoption of one or more of the following approaches: structural approach, functional approach, or application-based approach. Each of these strategies has been found to be significantly effective in reducing the number of major errors, enhancing the identification and prioritization of risks, and improving the response to occupational injuries and accidents. These improvements, in turn, have led to significant increases in productivity, profitability, and employee satisfaction.
Lastly, risk assessment can be improved by the use of project management tools and techniques. While the majority of projects will not require the full gamut of tools and techniques, there are some exceptions. For example, some projects may require the use of audit management, project accounting, and project tracking to ensure that a project’s risks are managed effectively. When it comes to projects that involve chemicals, asbestos, or radon, then expert input from professionals such as occupational health professionals, safety managers, and environmental assessors could go a long way toward ensuring that the project proceeds safely and ably. There is no substitute for good project management when it comes to the analysis, evaluation, and prioritization of your organization’s occupational hazards.
The five main risk identification and risk evaluation processes that are detailed here are critical to the success of any organization. If you want to ensure that your company stays competitive in the marketplace, you must make sure that your risk identification and analysis are on target. Make sure that your team is up to speed on the latest tools and techniques. Make sure that your project management skills are sharp and well honed. Take the time to understand what exactly the company does and how it identifies, evaluates, and manages its occupational hazards.