Risk Management - Types of Risk

Summary

This session emphasizes the unified approach to risk management, highlighting that different types of risks—strategic, operational, security, safety, and project risks—should not be siloed but managed holistically within an organization. The speaker stresses the importance of context in assessing risk, noting that what may be a severe consequence at the organizational level could be minor at a project level. The key is to apply consistent critical success factors across the organization while recognizing that the impact of risks will vary depending on the level and objectives of each part. Effective risk management requires an integrated view and cooperation among different organizational units.

Takeaways

• 📚 Risk Management is about understanding what can go wrong, why it can go wrong, and the controls in place to mitigate it.
• 🔍 A risk is a risk, regardless of its type; the key difference lies in the context of its management within the organization.
• 🏗️ Separating risk functions such as strategic, operational, or security risks can diminish overall risk management efforts due to a lack of holistic view.
• 🌐 It's crucial to maintain a realistic view across the organization to ensure that risk management is aligned with the organization's objectives.
• 💡 Risk consequences are relative to the level of the organization; what is severe at the top may be minor at a lower project level.
• 📈 Tailoring the context of risk management to different levels of the organization is essential for effective risk management.
• 📊 Critical success factors like safety, reputation, and finance should be consistent across the organization, even though their application may vary.
• 🛠️ The same critical success factors can be applied organization-wide, but their relevance may differ depending on the specific context of each part.
• 🔑 Understanding that risk is relative and context-dependent is key to managing risk more effectively.
• 🤝 Greater cooperation between different parts of the organization is facilitated by a unified approach to risk management.
• 🚀 The ultimate goal of risk management is to achieve the desired outcomes, which is more likely with a holistic and contextual approach.

Q & A

What is the main focus of the session discussed in the transcript?

The main focus of the session is to discuss the fundamental parts of risk and risk management, including different types of risks and the importance of managing them holistically within an organization.

Why is it problematic to separate risk management functions into different sections for different types of risks?

Separating risk management functions can diminish efforts because it leads to a lack of an integrated view across the organization, which is crucial for effective risk management.

What is the key message about risk according to the session?

The key message is that 'a risk is a risk,' and the only thing that changes is the context within which the risk is managed.

What are the potential consequences of not having a holistic view of risk management in an organization?

Not having a holistic view can lead to ineffective risk management, as different parts of the organization may not cooperate or understand the overall impact of risks on the organization's objectives.

What is the role of context in risk management as per the session?

Context is important because it helps to understand the specific circumstances and consequences of risks at different levels within the organization, allowing for tailored risk management approaches.

How does the session define the term 'risk' in the context of risk management?

The session defines 'risk' as the potential for something to go wrong, including the causes, consequences, and the effectiveness of controls in place to deal with it.

What is the importance of understanding the consequences of risks at different levels of an organization?

Understanding consequences at different levels ensures that risk management is appropriate and relevant to each part of the organization, preventing underestimation or overestimation of risk impact.

How can an organization ensure that its risk management program is successful?

An organization can ensure success by adopting a holistic approach to risk management, using the same critical success factors across the organization while tailoring the context to fit different levels.

What are some examples of critical success factors that can be applied across an organization?

Examples include safety, reputation, political, and financial understanding, as well as project-specific factors like schedule and environmental considerations.

How does the session suggest managing the different levels of consequences for risks in an organization?

The session suggests tailoring the context of risk management to fit the scale of operations at different levels, using a consistent approach to assess and respond to risks proportionally.

What does the session suggest as the ultimate goal of effective risk management?

The ultimate goal is to achieve greater cooperation between different parts of the organization and to manage risks more effectively by understanding that the context is what varies, not the nature of the risk itself.

Outlines

00:00

📈 Holistic Risk Management Approach

The speaker emphasizes the importance of a unified approach to risk management, highlighting that different types of risks such as strategic, operational, security, safety, and project risks should not be managed in isolation. The key message is that a risk is a risk regardless of its type, and the context in which it is managed is what varies. The speaker argues against siloing risk functions within an organization as it can lead to a fragmented view of risk and diminished management efforts. Instead, a holistic view is advocated for, where the organization considers the potential for things to go wrong, the controls in place, their effectiveness, and the consequences, all within the context of the organization's objectives.

Keywords

💡Risk

Risk refers to the possibility of an event occurring that will have a negative impact on objectives. In the video, the speaker emphasizes that all risks are fundamentally the same, differing only in the context in which they are managed. The script mentions various types of risk, such as strategic, operational, security, safety, and project risk, to illustrate that the key is to understand the potential for negative outcomes and manage them effectively.

💡Risk Management

Risk management is the process of identifying, assessing, and controlling risks. The video discusses the importance of a holistic approach to risk management, suggesting that separating risk management functions can lead to a fragmented view and diminished efforts. The script outlines the steps of risk management: identifying what can go wrong, assessing the controls in place, evaluating their effectiveness, and determining the consequences and potential actions.

💡Strategic Risk

Strategic risk pertains to the potential for failure in achieving long-term goals and objectives due to incorrect strategy decisions. The script mentions strategic risk as one of the types of risk that organizations face, indicating that while it is important to manage this type of risk, it should not be isolated from other risk management efforts.

💡Operational Risk

Operational risk involves the risks associated with day-to-day operations of a business, including processes, systems, and people. The video script highlights operational risk as a type of risk that needs to be managed within the broader context of the organization's overall risk management strategy.

💡Security Risk

Security risk relates to the potential for assets to be exposed to threats, such as cyber-attacks or data breaches. The speaker in the video script includes security risk as one of the various types of risks that organizations must consider, emphasizing the need for a comprehensive risk management approach.

💡Safety Risk

Safety risk is the potential for accidents or incidents that could cause harm to individuals or damage to property. The script discusses safety risk as an integral part of an organization's risk management process, where the potential for negative consequences must be assessed and mitigated.

💡Project Risk

Project risk refers to the potential for a project to fail to meet its objectives due to unforeseen issues or challenges. The video script mentions project risk as one of the specific types of risks that organizations face, and it should be managed in the context of the overall risk management framework.

💡Consequences

Consequences are the outcomes or results of an event, particularly those that are negative or adverse. In the context of the video, consequences are a key consideration in risk management, where the potential impact of risks on the organization's objectives is evaluated. The script uses the example of a $20 million consequence to illustrate how the severity of consequences can be viewed differently at various levels within an organization.

💡Context

Context refers to the circumstances or environment in which something occurs and is considered in order to understand it fully. The video emphasizes the importance of context in risk management, stating that while risks are universal, their management must be tailored to the specific circumstances of the organization and its various levels.

💡Critical Success Factors

Critical success factors are the key elements that must be present for an initiative, such as a project or a business strategy, to succeed. The script mentions that organizations can apply the same critical success factors across different parts of the organization, such as safety, reputation, and financial stability, to ensure the effectiveness of their risk management program.

💡Holistic Approach

A holistic approach involves considering all aspects of a situation or problem, rather than just a part of it. The video script advocates for a holistic view of risk management, suggesting that siloing risks can be detrimental and that a comprehensive view can lead to more effective management and better cooperation within the organization.

Highlights

Session focuses on the fundamental parts of risk and risk management.

Different types of risk such as strategic, operational, security, safety, and project risk are discussed.

Risk management should not be siloed by type but rather viewed holistically across the organization.

The importance of understanding that risk management is about identifying what can go wrong and how to deal with it.

Risks have different causes and consequences that are seen at different levels of the organization.

Tailoring the context of risk management to different levels within the organization is crucial.

The significance of critical success factors in risk management that can be applied across the organization.

The potential for siloed risk management to diminish overall efforts and the need for a holistic approach.

The need for a realistic view across the organization to manage risks effectively.

The impact of risk events on an organization and the importance of context in assessing consequences.

The concept that a risk's consequence can vary in severity depending on the scale of operations within the organization.

The importance of aligning risk management with the objectives of the organization at each level.

The role of cooperation between different parts of the organization in achieving effective risk management.

The session's goal to provide insights that can enhance understanding and application of risk management.

The reminder that a unified approach to risk is essential for effective management and cooperation within an organization.

Transcripts

well welcome to this next

session what I want to talk about in

this session is the fundamental parts of

risk and risk management and the

different types of risk and you hear it

all the time we've got strategic risk

operational risk security risk safety

risk uh project

risk to think that those things are

different is probably leading an

organization down a path to separate out

those

functions the thing that you need to

understand around risk and risk

management is that a risk is a risk is a

risk the only thing that differs is the

context within which we manage that risk

so having a section off doing reputation

risk and another section off doing

operational risk another section doing

um strategic risk can actually diminish

your risk management efforts because

we're not seeing an alistic view across

the whole organization

so it's really important to understand

that risk management as I've said in a

previous um in a previous session is all

about what can go wrong what would cause

it to go wrong what controls we have in

place to deal with it how effective are

they what the consequences be and what

we can do about it of course the context

that we're talking about here is that

the risks are going to have different

causes they're going to have different

consequen quences those consequences are

going to be seen at different levels of

the organization so we need to make sure

that each of those levels of the

organization do have a context that is

about meeting their objectives so what I

mean by that is if the organization as a

whole sees a risk event or an event that

occurs as um if it's got greater than

the $20 million consequence well that's

seen as having a severe consequence

quence but if we try and apply that

right throughout the organization then

what we're going to find is that a 1

million doll project down below would

not even get into the spectrum of

potentially being a minor consequence

against that particular um um that

particular category or that particular

Matrix and so what we need to understand

is that $1 million project anything

greater than 200,000 might be a severe

consequence to them so we need to tailor

our context throughout the organization

but we can have the same critical

success factors applied right across the

organization safety reputation

political Financial understanding that

it will change from top to bottom in

projects we'll have things around

schedule all of those environmental all

of those can be the same right across

the organization we can use the same

critical success factors obviously some

of them might not apply to different

parts but if you look at an organization

holistically as oppos opposed to trying

to Silo our risks then you will be much

more successful in achieving the

outcomes that are sought by your risk

management program always remember a

risk is a risk is a risk the only thing

that differs is the context and if we

remember that we're going to manage our

risk a lot more effectively and we're

going to have a greater cooperation

between different parts of the

organization and that's essentially what

we're

after okay that's all for this session I

hope you've got something out of it and

let's be careful out

there