Organizations must be able to manage risk, but in order to do so, companies must be able to measure it. The terminology used to measure risks include risk, tolerance, and sensitivity as well as assessment, measure, and perceptions.prepare an essay of at least two pages outlining how risk measures have developed and evolved over time. Your essay should also outline qualitative and quantitative measures of risk and discuss how cultures, structures, and process impact the risk management process.
Discuss how cultures, structures, and process impact the risk management process.
Whenever an organization undertakes a project, a risk is unavoidable, since projects empower change and whenever an organization has a change, there is an introduction of uncertainty and hence threat. Risks can be described as uncertain events which, when they occur in an organization, they adversely affect the predetermined objectives of a project. As a result, most organizations have adopted the art of designing and implementing risk management programs aimed at identifying, evaluating and treating the established risks. Risk management is designed to reduce the probability and the likelihood as well as the impact of threats and to increase the likelihood of opportunities rather than adverse effects (Bessis, 2015). However, before a risk program can be implemented in an organization the risk management team under the stewardship of a risk manager must measure the risk to determine the best alternative solution to the hazard identified. Risk measures can be defined as statistical measures that are historical projections of projects risk and volatility. This assignment will attempt to identify and describe how risk measures have evolved.
The evolution of risk measures
Risk measurement and quantitative tools are important for any risk management team. Qualitative risk measurement is a technique used in project management to establish the probability of a threat occurring, and the effect of the risk will have on the business if at all it occurs. A qualitative risk measurement prioritizes the established project threat using pre-determined rating scales. Using this method, threats is measured based on the likelihood of their occurrence and the effect they have on the project goals (Biagini, Richter, & Schlesinger, 2013). The likelihood of the risk occurring is often graded on a scale from zero to one. On the other hand, a quantitative risk measurement is a further evaluation of the superior priority threats during which numeric grading is assigned to create a likelihood analysis of the project. Unlike the qualitative risk measurement, quantitative risk measurement quantifies the possible results of a project, provides a numeric approach to taking business activities where there is suspense and develops realistic and achievable expenses, plan or scope targets. Besides, qualitative risk measurement does not evaluate the threats numerically to establish the likelihood and diffusion rather stakeholders efforts are utilized to measure the likelihood and effects of the threat. However, quantitative risk measurement exploits probability distribution to characterize the risk’s likelihood and impact (Biagini, Richter, & Schlesinger, 2013).
Risk management process
Risk management focuses on identifying, evaluating, prioritizing and treating threats that are poised to affect the operations of the business. The risk management process comprises of systematic utilization of management activism and practices to the tasks of identifying the nature, treating, managing and communicating the risk to all stakeholders. Organizational culture significantly influences the risk management process in an organization considering that it governs how people behave in an organization (Valsamakis, Vivian, & Du, 2010). Therefore, if an entity has a culture of collaborating and influencing the workforce to behave in a certain manner, it determines whether the company prioritizes and teaches their employees on how to identify and treat threats. On the other hand, an organizational structure substantially affects how risk management activities are directed towards the achievement of organizational goals and objectives. Therefore, an organization should focus on designing and implementing open communication methods to communicate the risks associated with certain business decisions (Valsamakis, Vivian, & Du, 2010). Finally, business and organization processes largely influence risk management processes as they influence how risk management processes are coordinated and executed in an organization as well as how they are communicated in organizations.
Bessis, J. (2015). Risk Management in Banking. New York, NY: John Wiley & Sons.
Biagini, F., Richter, A., & Schlesinger, H. (2013). Risk measures and attitudes. London: Springer.
Valsamakis, A. C., Vivian, R. W., & Du, T. G. (2010). Risk management. Sandton: Heinemann.