13 What are the various categories of risk?

Summary

In this video, the speaker explores the various categories of risk essential for effective risk management. These include technical, commercial, management, and external risks, each with subcategories that offer a detailed approach to risk identification. The key is to use a structured framework known as a Risk Breakdown Structure (RBS), which helps ensure no important risk category is overlooked. By breaking down risks into hierarchical layers, the RBS aids in identifying potential areas of focus and provides a comprehensive method for assessing and mitigating risks in any project or organization.

Takeaways

• 😀 Risk comes in different categories, and it's important to recognize these various types to ensure comprehensive risk management.
• 😀 The four major categories of risk are technical risks, commercial risks, management risks, and external risks.
• 😀 Technical risks vary depending on the industry or project type, such as software development, bridge construction, or office relocation.
• 😀 Commercial risks involve financial aspects like contracts, legal liabilities, and client relationships.
• 😀 Management risks are internal to an organization, involving decision-making, communication, and resource management.
• 😀 External risks arise from outside factors such as weather, competition, politics, and regulatory authorities.
• 😀 A structured approach to categorizing risks, like the Risk Breakdown Structure (RBS), helps ensure all potential risks are identified and assessed.
• 😀 The Risk Breakdown Structure (RBS) is a hierarchical framework for organizing and identifying different types of risks.
• 😀 By organizing risk categories into a hierarchy, organizations can more effectively pinpoint risks and address them.
• 😀 Using an RBS ensures that no important risk category is overlooked and helps in systematically assessing risks in various areas of an organization.
• 😀 The Risk Breakdown Structure (RBS) was developed in 2002 and has become a widely used tool in the risk management sector.

Q & A

What are the four main categories of risk mentioned in the video?

The four main categories of risk are technical risks, commercial risks, management risks, and external risks.

Why is it important to think about risk in categories?

Thinking about risk in categories helps ensure that no important area is missed during risk management, identification, and assessment. It provides a structured way to identify, evaluate, and address risks effectively.

How does the concept of a Risk Breakdown Structure (RBS) help in risk management?

The Risk Breakdown Structure (RBS) is a hierarchical framework that organizes risks into categories and subcategories. This structured approach makes it easier to identify risks, assess their impact, and ensure all possible risks are considered.

Can you explain the difference between internal and external risks?

Internal risks are risks that originate from within the organization, such as issues related to management, decision-making, and communication. External risks come from outside the organization, such as weather, competition, legal issues, and regulatory bodies.

How do technical risks vary across different industries or projects?

Technical risks differ depending on the industry or project. For example, in software development, technical risks may involve technology, processes, and interfaces, while in construction, they may involve materials, design, and construction techniques.

What are some examples of commercial risks?

Commercial risks include issues related to contracts, legal liabilities, client agreements, subcontracts, warranties, terms and conditions, and the financial aspects of business operations.

How can the use of a structured risk identification approach help in identifying overlooked risks?

Using a structured approach like the Risk Breakdown Structure (RBS) helps ensure comprehensive risk identification. By organizing risks into categories and subcategories, it prompts risk assessors to consider all potential areas, preventing important risks from being overlooked.

What might be some examples of risks under the 'management' category?

Risks under the management category include issues related to policies and procedures, organizational structure, decision-making processes, communication, strategy, and resource allocation.

Why is it beneficial to use a checklist when identifying risks?

A checklist helps ensure that all categories and subcategories of risks are covered during the identification process. It provides a systematic approach to make sure that no area is missed and enables teams to focus on specific risk areas.

How does the external risk category differ from the others?

External risks are factors outside the organization’s control, such as political changes, weather conditions, competition, and regulatory changes. Unlike internal risks, external risks are influenced by broader, uncontrollable factors.