Risk management is the identification, evaluation, and prioritization of risks (defined in ISO

31000 as the effect of uncertainty on objectives) followed by coordinated and economical application
of resources to minimize, monitor, and control the probability or impact of unfortunate events[1] or to
maximize the realization of opportunities.
Risks can come from various sources including uncertainty in financial markets, threats from project
failures (at any phase in design, development, production, or sustainment life-cycles), legal liabilities,
credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of
uncertain or unpredictable root-cause. There are two types of events i.e. negative events can be
classified as risks while positive events are classified as opportunities. Several risk
management standards have been developed including the Project Management Institute,
the National Institute of Standards and Technology, actuarial societies, and ISO
standards.[2][3] Methods, definitions and goals vary widely according to whether the risk management
method is in the context of project management, security, engineering, industrial processes, financial
portfolios, actuarial assessments, or public health and safety.
Strategies to manage threats (uncertainties with negative consequences) typically include avoiding
the threat, reducing the negative effect or probability of the threat, transferring all or part of the threat
to another party, and even retaining some or all of the potential or actual consequences of a
particular threat, and the opposites for opportunities (uncertain future states with benefits).
Certain aspects of many of the risk management standards have come under criticism for having no
measurable improvement on risk; whereas the confidence in estimates and decisions seem to
increase.[1] For example, one study found that one in six IT projects were "black swans" with gigantic
overruns (cost overruns averaged 200%, and schedule overruns 70%).[4]

Contents

 1Introduction
o 1.1Method
o 1.2Principles
 2Process
o 2.1Establishing the context
o 2.2Identification
o 2.3Assessment
 3Risk options
o 3.1Potential risk treatments
o 3.2Risk management plan
o 3.3Implementation
o 3.4Review and evaluation of the plan
 4Limitations
 5Areas
o 5.1Enterprise
o 5.2Enterprise Security
o 5.3Medical device
o 5.4Project management
o 5.5Megaprojects (infrastructure)
o 5.6Natural disasters
o 5.7Wilderness
o 5.8Information technology
o 5.9Petroleum and natural gas
 o 5.10Pharmaceutical sector
 6Risk communication
 7See also
 8References
 9External links

Introduction[edit]
A widely used vocabulary for risk management is defined by ISO Guide 73:2009, "Risk
management. Vocabulary."[2]
In ideal risk management, a prioritization process is followed whereby the risks with the greatest loss
(or impact) and the greatest probability of occurring are handled first, and risks with lower probability
of occurrence and lower loss are handled in descending order. In practice the process of assessing
overall risk can be difficult, and balancing resources used to mitigate between risks with a high
probability of occurrence but lower loss versus a risk with high loss but lower probability of
occurrence can often be mishandled.
Intangible risk management identifies a new type of a risk that has a 100% probability of occurring
but is ignored by the organization due to a lack of identification ability. For example, when deficient
knowledge is applied to a situation, a knowledge risk materializes. Relationship risk appears when
ineffective collaboration occurs. Process-engagement risk may be an issue when ineffective
operational procedures are applied. These risks directly reduce the productivity of knowledge
workers, decrease cost-effectiveness, profitability, service, quality, reputation, brand value, and
earnings quality. Intangible risk management allows risk management to create immediate value
from the identification and reduction of risks that reduce productivity.
Risk management also faces difficulties in allocating resources. This is the idea of opportunity cost.
Resources spent on risk management could have been spent on more profitable activities. Again,
ideal risk management minimizes spending (or manpower or other resources) and also minimizes
the negative effects of risks.
According to the definition to the risk, the risk is the possibility that an event will occur and adversely
affect the achievement of an objective. Therefore, risk itself has the uncertainty. Risk management
such as COSO ERM, can help managers have a good control for their risk. Each company may
have different internal control components, which leads to different outcomes. For example, the
framework for ERM components includes Internal Environment, Objective Setting, Event
Identification, Risk Assessment, Risk Response, Control Activities, Information and Communication,
and Monitoring.

Method[edit]
For the most part, these methods consist of the following elements, performed, more or less, in the
following order.

1. identify, characterize threats

2. assess the vulnerability of critical assets to specific threats
3. determine the risk (i.e. the expected likelihood and consequences of specific types of attacks
on specific assets)
4. identify ways to reduce those risks
5. prioritize risk reduction measures
Principles[edit]
The International Organization for Standardization (ISO) identifies the following principles of risk
management:[5]
Risk management should:

 create value – resources expended to mitigate risk should be less than the consequence of
inaction
 be an integral part of organizational processes
 be part of decision making process
 explicitly address uncertainty and assumptions
 be a systematic and structured process
 be based on the best available information
 be tailorable
 take human factors into account
 be transparent and inclusive
 be dynamic, iterative and responsive to change
 be capable of continual improvement and enhancement
 be continually or periodically re-assessed

Process[edit]
According to the standard ISO 31000 "Risk management – Principles and guidelines on
implementation,"[3] the process of risk management consists of several steps as follows:

Establishing the context[edit]

This involves:
1.
 the social scope of risk management
 the identity and objectives of stakeholders
 the basis upon which risks will be evaluated, constraints.
2. defining a framework for the activity and an agenda for identification
3. developing an analysis of risks involved in the process
4. mitigation or solution of risks using available technological, human and organizational
resources
Identification[edit]
After establishing the context, the next step in the process of managing risk is to identify potential
risks. Risks are about events that, when triggered, cause problems or benefits. Hence, risk
identification can start with the source of our problems and those of our competitors (benefit), or with
the problem itself.

 Source analysis[6] – Risk sources may be internal or external to the system that is the target of
risk management (use mitigation instead of management since by its own definition risk deals
with factors of decision-making that cannot be managed).
Examples of risk sources are: stakeholders of a project, employees of a company or the weather
over an airport.

 Problem analysis[citation needed] – Risks are related to identified threats. For example: the threat of
losing money, the threat of abuse of confidential information or the threat of human errors,
 accidents and casualties. The threats may exist with various entities, most important with
shareholders, customers and legislative bodies such as the government.
When either source or problem is known, the events that a source may trigger or the events that can
lead to a problem can be investigated. For example: stakeholders withdrawing during a project may
endanger funding of the project; confidential information may be stolen by employees even within a
closed network; lightning striking an aircraft during takeoff may make all people on board immediate
casualties.
The chosen method of identifying risks may depend on culture, industry practice and compliance.
The identification methods are formed by templates or the development of templates for identifying
source, problem or event. Common risk identification methods are:

 Objectives-based risk identification[citation needed] – Organizations and project teams have objectives.
Any event that may endanger achieving an objective partly or completely is identified as risk.
 Scenario-based risk identification – In scenario analysis different scenarios are created. The
scenarios may be the alternative ways to achieve an objective, or an analysis of the interaction
of forces in, for example, a market or battle. Any event that triggers an undesired scenario
alternative is identified as risk – see Futures Studies for methodology used by Futurists.
 Taxonomy-based risk identification – The taxonomy in taxonomy-based risk identification is a
breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices, a
questionnaire is compiled. The answers to the questions reveal risks.[7]
 Common-risk checking[8] – In several industries, lists with known risks are available. Each risk in
the list can be checked for application to a particular situation.[9]
 Risk charting[10] – This method combines the above approaches by listing resources at risk,
threats to those resources, modifying factors which may increase or decrease the risk and
consequences it is wished to avoid. Creating a matrix under these headings enables a variety of
approaches. One can begin with resources and consider the threats they are exposed to and the
consequences of each. Alternatively one can start with the threats and examine which resources
they would affect, or one can begin with the consequences and determine which combination of
threats and resources would be involved to bring them about.
Assessment[edit]
Main article: Risk assessment
Once risks have been identified, they must then be assessed as to their potential severity of impact
(generally a negative impact, such as damage or loss) and to the probability of occurrence. These
quantities can be either simple to measure, in the case of the value of a lost building, or impossible
to know for sure in the case of an unlikely event, the probability of occurrence of which is unknown.
Therefore, in the assessment process it is critical to make the best educated decisions in order to
properly prioritize the implementation of the risk management plan.
Even a short-term positive improvement can have long-term negative impacts. Take the "turnpike"
example. A highway is widened to allow more traffic. More traffic capacity leads to greater
development in the areas surrounding the improved traffic capacity. Over time, traffic thereby
increases to fill available capacity. Turnpikes thereby need to be expanded in a seemingly endless
cycles. There are many other engineering examples where expanded capacity (to do any function) is
soon filled by increased demand. Since expansion comes at a cost, the resulting growth could
become unsustainable without forecasting and management.
The fundamental difficulty in risk assessment is determining the rate of occurrence since statistical
information is not available on all kinds of past incidents and is particularly scanty in the case of
catastrophic events, simply because of their infrequency. Furthermore, evaluating the severity of the
consequences (impact) is often quite difficult for intangible assets. Asset valuation is another
question that needs to be addressed. Thus, best educated opinions and available statistics are the
primary sources of information. Nevertheless, risk assessment should produce such information for
senior executives of the organization that the primary risks are easy to understand and that the risk
management decisions may be prioritized within overall company goals. Thus, there have been
several theories and attempts to quantify risks. Numerous different risk formulae exist, but perhaps
the most widely accepted formula for risk quantification is: "Rate (or probability) of occurrence
multiplied by the impact of the event equals risk magnitude.