Risk Management Essay Example

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Risk Management

Risk Management

Risk implies any form of uncertainty that might result from decisions made. Therefore, it involves deviation from the expected outcomes. Moreover, relates to a possibility that an organization is likely to suffer from harm, losses, or dangers associated with unforseen calamities. Risks also means the chance that the actual return of an investment might be different from the expected. Sometime the decision making process might be extremely complicated considering the amount of unforseen calamities involved. As a result, decision makers have the responsibility of weighing the available options to reduce the magnitude of negative effects associated with the risk. Risk is also a probability that something is likely to have negative impacts on the objectives, which is measureable in terms of consequences and likelihood (Agrawal, 2009). In addition, risks could also compromise organizational assets. Depending on the situation involved in the decision making process, different types of risks are likely to emerge. To some extent, these risks often result in unforseen financial losses and variation in the expected results. From finance point, the fundamental idea is always on the relationship between the risks and the associated returns.

Relationship between Threat and Risk Management

A threat is considered anything unwanted that is likely happen upon making decision. It is also anything with the ability to exploit vulnerability of an asset to cause damage and destruction intentionally or accidentally. On the other hand, risks involve potential for loss, damages, and destruction of an asset due to exploitation of the vulnerability by threat. Therefore, risk is an intersection resulting from the interaction of the assets, threats, and vulnerabilities.

Hence, Risk (R) = Asset (A) + Threat (T) + Vulnerability (V)

Since risk is a function of threats that exploit vulnerabilities to destroy the assets, actual, inherent, or conceptual threats might exist might emerge. However, in the absence of vulnerabilities, there might be little or no risk. From security point, the major threat that always pops the mind on the decision makers is a security attack. However, it is important to note that threats might originate from simple mistakes originating from the employees to natural disasters. To identify the risks, it is important to understand different elements including threat, criticality, and vulnerability level. The decision makers must identify the nature of threat, manner in which it interact with various organizational elements like the assets, and probability that these interactions might result in serious risks.

Risk Management

Figure 1: Interaction between Risk, Threats, and Vulnerability in Information System

Cultural risk

Cultural theory of risk involves conceptual framework with empirical studies seeking to explain societal conflict over risk. The theory proclaims that social organizational structure bestow people with the perception, which reinforces those structures in competition against the alternative ones.

Risk Management 1

Figure 2: Cultural Risk Grid-Group Model

The grid has four major components including individualists, egalitarians, hierarchical, and fatalists. To reduce the risks, individualists need to exercise transparency, entrepreneurialism, and openness. However, they might obstruct their freedoms and create several risks in the decision making process. The egalitarians also need to show partnership, solidarity, cooperation, and mutualism to reduce the risks. Nevertheless, fears might develop especially from inequalities among the involved parties. Hierarchically, there is need to focus on stronger regulations and stable structures to encourage contribution from different people. Social commotion, demonstrations, and crime related activities might result in several risks. With respect to fatalities, chaos, social exclusions, powerlessness, and futility might result in different forms of risks.

Risk Communication

In order to solve adequately the identified risk, it is significant to communicate effectively the risk with the other stakeholders in form of engagement. Engaging the audience would ensure that all the aspects of the risks are managed properly. Communication is an important component of the risk analysis process. Therefore, the decision makers must ensure that the information given to the people for contribution is comprehensive, clear, and adequate. The main object of risk communication is to ensure provision of accurate, meaningful, and relevant information to the targeted audience. Therefore, an effective risk communication should build and maintain trust and confidence among the involved parties. Management need to agree on the deliverables and factors likely to cause deviation on the expected outcome. To some extent, an effective communication would reduce cases associated with conflict of interest among the involved parties. People have different perception on different types of risk affecting organizational performance. Through communication, the management is able to change the perception of people and embrace a common risk management method. Besides, it should facilitate greater degree of consensus, which is supported by all the interested parties involved in risk management. These consultation processes should promote awareness, consistency, and foster public confidence among the involved parties.


Agrawal, R. C. (2009). Risk management. Jaipur, India: ABD Publishers.