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IABFM Articles > > Risk Management > The Dimensions of Risk Management - August 1998
The Dimensions of Risk Management - August 1998
By Michael Vincent
28 December, 2006
Risk is an event or occurrence that can have a negative impact on the business. This impact can occur in many ways from a financial deficiency through the spectrum to legal issues.
On the way home tonight I had chosen the risk topic for this month to share with you, I tuned into the radio to keep me company on the way home and heard the report on the latest mine disaster in New South Wales. To say it was damming is to understate the comments; the report has found a complete disregard for human safety and a complete absence of risk management. The mine has now shut and the business has ceased.
This was going to be a normal monthly explanation of a risk topic, however I take the opportunity to plead with you all to look to the risk management issues in your workplace. A human life is a precious commodity.
This month I would like to outline a report researched and completed by Ian McDonell, at the time of the completion of the work he was employed by Mines Rescue of NSW, he has now moved on to greener pastures in Queensland.
Ian's topic is the second in a series from Mines rescue NSW and he looked at the development of a functional risk management model that could have an application as a management tool in peripheral operations to the underground coal mining industry.
The report found that the current "best practice" was flawed and contained the following problems:
1. Very few personnel from senior management downward, despite extensive training, understood the concepts of risk management as opposed to risk assessment.
2. Conventional texts and consultants followed rigid paths that did not allow flexibility in solutions to risk management problems so as to tailor outcomes for an individual organisation.
3. It can be argued that the same texts and consultants prefer to mould participants thoughts to already predetermined outcomes and therefore stifle any creative solutions to risk management problems.
4. By not applying management responsibilities to the risk management of problems, no real commitment from management to outcomes was often evident, particularly when the outcomes required any level of expenditure.
5. In none of the risk assessments examined was a commitment to an outcome given by the provider.
6. Existing mindsets by providers and consultants masked flexibility of solutions with a tendency to statements, e.g. "This is the way that X Company solved the problem and it seems to have worked for them, accordingly you should do the same." The report found that these solutions rarely worked outside the original location of the assessment.
The report culminated in a risk management model that was developed by Ian McDonell during 1997. It consists of four broad stages with intermediate steps: (full details may be supplied on application and approval of the author)
1. The Corporate Process
a. management policiesb. management strategiesc. management commitmentd. management procedures
2. The Risk Analysis Process
a. hazard identificationb. risk assessmentc. control prioritisationd. control recommendations
3. The Risk Control Process
a. control policy and strategyb. control financing c. control implementationd. control measurement
4. The Audit and Improvement Process
a. risk management process auditingb. risk management process reportingc. risk management effective measurementd. risk management strategy redevelopmente. risk management corporate recommendations
The above steps create a framework that enables innovative and effective solutions to be found for outstanding issues of concern for management. Risk management must be a process that is used to assist in the provision of a safe working environment. This environment can be a normal workplace; a training establishment or an underground coal mine. Any of these places can be prone to a major unplanned incident that may lead to an emergency response. Management must be concerned with assessment and planning for the worst case scenarios and the more dangerous the work environment the more rigorous the process of risk assessment and risk management. Most or indeed all major mining companies have disaster recovery or business resumption plans but the area of greatest need is the disaster response plan that guides the actions moments after the disaster has occurred. Time and time again minutes separate a successful rescue from a recovery operation.
In the business world of today the ostrich approach to risk assessment and management is no longer acceptable by society. Corporations need to realise that risk management has a moral dimension supported by legal authority.
Ignoring the realities can create an environment for business dissolution and failure.
About the Authors
Senior Lecturer, Department of Accounting and Finance
Faculty of Business and Economics
Monash University
