This is a broad definition that can quite rightly apply in nearly all fields of management from financial and human resources management through to environmental management. However in the context of contaminated sites, risk management can be taken to mean the process of gathering information to make informed decisions to minimise the risk of adverse effects to people and the environment.
Risk assessment involves estimating the level of risk – estimating the probability of an event occurring and the magnitude of effects if the event does occur.
Essentially risk assessment lies at the heart of risk management, because it assists in providing the information required to respond to a potential risk.
In a resource management setting, environmental risk assessment may be used to help manage, for example:
- Natural hazards (flooding, landslides)
- Water supply and waste water disposal systems
- Contaminated sites
Human health risk assessment is one form of risk assessment, focusing on assessing the risk to people and communities from hazardous substances or discharge of contaminants.
Ecological risk assessment is another form of risk assessment that can be used to assist management of risks to ecological values.
The focus of risk assessment for contaminated sites is usually human health, as a large proportion of the known potentially contaminated sites are located in urban areas. However, where valued natural environments are present, the focus of ecological risk assessment is on assessing the risks to plants, animals and ecosystem integrity from chemicals present at or discharging from a contaminated site.
As applied to corporate finance, risk management is the technique for measuring, monitoring and controlling the financial or operational risk on a firm's balance sheet.The Basel II framework breaks risks into market risk (price risk), credit risk and operational risk and also specifies methods for calculating capital requirements for each of these components.
There are two types of risk managements,
- Enterprise Risk management
- Risk management activities as applied to project management
Enterprise Risk Management:
Exposure to natural hazards is only one of the many risks faced by the P&C insurance industry. An insurer’s or reinsurer’s balance sheet supports a broad range of additional risks ranging from non-CAT liabilities to credit, market, and operational risk.
In the more general case, every probable risk can have a pre-formulated plan to deal with its possible consequences (to ensure contingency if the risk becomes a liability).
- the cost associated with the risk if it arises, estimated by multiplying employee costs per unit time by the estimated time lost (cost impact, C where C = cost accrual ratio * S).
- the probable increase in time associated with a risk (schedule variance due to risk, Rs where Rs = P * S).
- the probable increase in cost associated with a risk (cost variance due to risk, Rc where Rc = P*C = P*CAR*S = P*S*CAR)
Risk in a project or process can be due either to Special Cause Variation or Common Cause Variation and requires appropriate treatment. That is to re-iterate the concern about extremal cases not being equivalent in the list immediately above.
Risk management activities as applied to project management:
In project management, risk management includes the following activities:
- Planning how risk management will be held in the particular project. Plan should include risk management tasks, responsibilities, activities and budget.
- Assigning a risk officer - a team member other than a project manager who is responsible for foreseeing potential project problems. Typical characteristic of risk officer is a healthy skepticism.
- Maintaining live project risk database. Each risk should have the following attributes: opening date, title, short description, probability and importance. Optionally a risk may have an assigned person responsible for its resolution and a date by which the risk must be resolved.
- Creating anonymous risk reporting channel. Each team member should have possibility to report risk that he foresees in the project.
- Preparing mitigation plans for risks that are chosen to be mitigated. The purpose of the mitigation plan is to describe how this particular risk will be handled – what, when, by who and how will it be done to avoid it or minimize consequences if it becomes a liability.
- Summarizing planned and faced risks, effectiveness of mitigation activities and effort spend for the risk management.
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