In operations, financial reporting and compliance, risks need to be identified and analyzed. Assessing risk enables you better achieve your group's goals by helping you determine how pitfalls should be managed.
Who is Responsible?
Managers must determine the level of operations, financial and compliance risk they are willing to assume.Assessing riskenables managers toproactively reduce unwanted surprises.
How to Identify Risk
A risk is anything that could jeopardize the achievement of an objective. It's important that risksbe comprehensively identified for each objectiveat the department level and at the activity or process level. Both external and internal risk factors must be considered.Usually, several risks can be identified for each objective.
To identify risks, consider:
What could go wrong?
How could we fail?
What must go right for us to succeed?
Where are we vulnerable?
Which assets do we need to protect?
Do we have liquid assets or assets with alternative uses?
How could someone steal from the department?
How could someone disrupt our operations?
How do we know whether we are achieving our objectives?
These are transactions that deserve athoughtful risk review. Here are some examples:
Assets with alternative uses
Cash receipts
Confidential information
Consultant payments and other payments for services
Equipment
Equipment delivered directly to department
Equipment moved off location
Grants (meeting terms, not overspending)
Intellectual property
Payments to non-vendors
Payroll (rates, changes, terminations)
Petty cash
Purchase exemptions (Sole Source)
Scholarships
Software licensing issues
Travel expenditures
Risk Analysis
After risks have been identified,an analysis should be performed to set priorities:
Assess the likelihood (or frequency) of the risk occurring.
Estimate the potential impact if the risk were to occur. Consider both quantitative and qualitative costs.
Determine how the risk should be managed; decide what actions are necessary.
Prioritizing helps departments focus their attention on managing significant risks such asrisks with reasonable likelihoods of occurrence and large potential impacts.
Make sure the department has a mission statement and written goals and objectives.
Assess risks at the departmental level.
Assess risks at the activity (or process) level.
Complete a Business Controls Worksheetfor each significant activity (or process) in the department; prioritize those activities (or processes) that are most critical to the success of the department and those activities (or processes) that could be improved the most.
Make sure that all risks identified at the department level are addressed on the BusinessControls Worksheet.
The five measures include alpha, beta, R-squared, standard deviation, and the Sharpe ratio. Risk measures can be used individually or together to perform a risk assessment.
Step 1: Identify the hazards/risky activities; Step 2: Decide who might be harmed and how; Step 3: Evaluate the risks and decide on precautions; Step 4: Record your findings in a Risk Assessment and management plan, and implement them; Step 5: Review your assessment and update if necessary.
A manager is carrying out a risk assessment among drillers in an underground gold mine. The drillers use pneumatic jackhammers. After some years in this mine several of the drillers developed lung problems, and the owner realizes that safety and health practices need to be improved in this regard.
While many individuals are involved in the process and many factors come into play, performing an effective risk assessment comes down to four core elements: risk identification, risk analysis, risk evaluation and risk communication.
Welcome to the forth step of our risk assessment series – Record your findings… So far you have identified any hazards, determined who may be harmed, evaluated the risk and put in place control measures.
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