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The Purpose Of Risk Management And Its Importance For European Industries

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According to Modigliani (1958), there is no value for the firms regarding risk management when the action is absent. However, by adding frictions to the framework, risk management becomes a constructive part of a company. There is an early and continuous identification in order to understand the objective of risk identification and it is very important for European industries to identify the risk otherwise it will have negative impacts on the project’s ability to achieve performance or capability outcome goals. They may come from within the project or from external sources.

There are multiple types of risk assessments, including program risk assessments, risk assessments to support an investment decision, analysis of alternatives, and assessments of operational or cost uncertainty. Risk identification needs to match the type of assessment required to support risk-informed decision making. For an acquisition program, the first step is to identify the program goals and objectives, thus fostering a common understanding across the team of what is needed for program success. This gives context and bounds the scope by which risks are identified and assessed. Due to the wide range of effects, risk management strategies and measures are often difficult to compare and evaluate. The north countries such as Sweden and Norway have on their minds that the best decision is the one that yields the greatest expected value. The aim of risk management is to take measures for managing risks of concern and make sure that they do not give rise to any new or additional risks. However, this may not be possible in all cases and all the time. At some point in time, decision makers will need to balance increases in one type of risk against decreases in another type of risk. This may require comparisons and costs/benefits trade-offs. For example, they need to consider between the following: the human safety and health risks versus the environment risks; individual risks versus collective or societal risks; risk receptors versus risk receptors, chemicals versus chemicals, activities versus activities, and many more. An important task of risk management,a criteria where Netherland society embraces is to combine overall perceived risks with overall perceived benefits into an overall evaluation.

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For a long time, both consciously and unconsciously, individuals, groups of people and the entire society have been exploiting and enjoying benefits attached to chemicals. Benefits and costs of risks are often inseparable. Almost all risk management strategies and measures, in particular large and sensitive decisions, involve costs. It may be nearly always possible to take measures that would reduce risks further, but the costs would outweigh the expected benefits. In many cases, in decision making, a balance between the benefits of safety and costs of achieving them is needed. In economists’ terminology, this means that risks should be reduced until the “marginal cost equals the marginal benefit. ” These principles are applied to many different kinds of decision-making. For example, ALARP (“As Low As is Reasonably Practicable”) and BATNEEC (“Best Available Technology Not Entailing Excessive Costs”), which imply a balance between costs and benefits, are adopted in risk management of dangerous goods-related activities. However, in many cases, large amounts of resources may be invested for “little gains. ”Risk criteria, embodying the ‘ALARP’ principle, are developed for different degrees of platform damage, expressed as asset loss. Initiating events leading to possibly significant failure modes are identified and quantified, mostly using fault trees. Much of the effort has gone into identifying and quantifying human error frequencies, including those for recovery failure, based on detailed scrutiny of the operations and established human factors methodologies.

Outcome modelling for the initiating events uses an event tree approach, and the detail in the consequence modelling, e. g. for modelling of structural damage, is commensurate with the expected risk as identified in a ‘first pass’ analysis. In Meditarrean countries Risk-reduction measures are targeted at dominant risk contributors, whose principal determinants can be identified from the fault trees. The application of the method to the analysis and mitigation of dropped-object risks during certain construction phases of the platform is described. JAA undertook the following six-step process to establish risk criteria at the company. First, it selected each of the five strategic objectives and articulated its position on expected outcomes and how it would measure such outcomes. The five objectives were: Maintaining market leadership, Sustaining technology leadership, Strengthening global presence, Delivering quality service, Being seen as a leader in compliance with all laws and regulations.

For example, the expected outcomes for “being seen as a leader in compliance with all laws and regulations” are minimal injury to employees, zero fatalities, not facing prosecutions and enforcement actions, and minimizing the cost of any cleanup. It decided to measure such outcomes by people impact, legal actions, and duration and cost of any cleanup. Second, it developed scales for each consequence type using ordinal measurement with the low end representing tolerable or insignificant deviations from the expected values and the high end representing very high consequences that maybe retained only by board approval. Third, it decided how likelihood would be expressed, and chose ranges from rare to very often with their associated probabilities. Fourth, it developed a table to derive the level of risk. The company opted to express the level of risk as a distribution instead of a point level so that different levels of impact could be expressed with the corresponding likelihood.

Fifth, it decided how the level of risk would be expressed by using a scale consisting of four levels from high to low, based on the combination of impact and likelihood mentioned before. With this table, for each risk, a treatment method is determined by multiplying the likelihood (probability) with impact level. Bow tie analysis is being used to map objectives and the events or consequences. It is important that the individual risks are not looked at entirely in isolation from each other. Doing so is what is known as a silo approach to risk management. Instead, managers must develop a holistic view of risk. Organisations may have small exposures to the individual risks, but when these are aggregated they may have, in total, substantial financial and non-financial risks that require careful management.


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