TOU 041 Risk Management – Study Notes (PHINMA Education)

Quiz Bee Reviewer: Risk Management Concepts
I. Concepts and Definitions of Risk

  1. Common Descriptions of Risk

    • Question: How is risk commonly described in everyday language?

    • Answer: Hazard, danger, and peril; exposure to loss, injury, or destruction.

  2. Key Definitions

    • BusinessDictionary: "the probability of threat of damage, injury, liability or any other adverse occurrence that is caused by external or internal vulnerabilities, and that maybe avoided through pre-emptive action".

    • UNWTO (Tourism & Hospitality): A situation that exposes someone or something to danger, pertinent when engaging in tourism and hospitality businesses.

    • Economic View: "future uncertainty about deviation from expected earnings or expected outcome"; measures the uncertainty an investor accepts for potential gain.

    • Mnemonic/Memory Aid: Think PURE for the nature of risk:

      • Probability (BusinessDictionary)

      • Uncertainty (Economic View)

      • Reality (UNWTO - real-world application)

      • Exposure (Common description)

II. Risk, Harm, and Hazard (Foundational Distinctions)

  1. Match the Term to its Definition:

    • Hazard: A condition with the potential to cause harm.

    • Risk: The probability and impact of an adverse outcome resulting from exposure to a hazard.

    • Harm: The actual injury, loss, or damage that occurs.

    • Strategic Tip: Remember the progression: Hazard (potential cause) -> Risk (likelihood/severity) -> Harm (actual result). Think of a banana peel (Hazard) on the floor, the chance of slipping (Risk), and the broken bone (Harm).

III. Risk Management and ISO 31000

  1. Definition:

    • Question: What is the ISO 31000-inspired definition of Risk Management?

    • Answer: The identification, evaluation, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability of unfortunate events to achieve the desired output.

    • Quick Reference Note: It's a systematic process to achieve objectives by handling uncertainty.

IV. The Economics and Perception of Risk

  1. Economic Perspective:

    • Key Idea: Risk represents future uncertainty about deviation from expected earnings or outcomes.

    • Investor's Role: It measures the uncertainty an investor is willing to take to realize a gain.

    • Perception Shift: We should view risk not just as a threat, but as an opportunity to plan and mitigate its adverse effects.

    • Strategic Tip: Don't just avoid risk; understand it to leverage it for better planning.

V. Importance of Risk Management

  1. Benefits of Risk Management:

    • Barry Boehm's Insight: "Risk Management focuses the project manager's attention on those portions of the project most likely to cause trouble and compromise participants."

    • Impact: Affects all aspects of a project: budget, schedule, quality, and overall success.

    • Main Objective:

      • Increase the probability and impact of positive outcomes.

      • Decrease the probability and impact of negative outcomes.

    • Mnemonic/Memory Aid: Think Pro-Active, Not Re-Active!

  2. Crisis Management vs. Risk Management:

    • Crisis Management: Reactive (deals with problems after they occur).

    • Risk Management: Proactive (plans for potential issues in advance).

VI. Risk Quadrants (Types of Business Risks)

  1. Identify the Quadrants and Examples:

    • Financial Risk: Loss of income/sales, rising expenses, budgeting/cash flow problems.

    • Hazard/Property Risk: Natural disasters (earthquakes, typhoons), workplace accidents, theft, health emergencies.

    • Strategic Risk: Problems from wrong decisions (e.g., wrong market entry timing, failed product launches, failure to adapt to new trends and competition).

    • Operational Risk: Day-to-day issues (machine breakdowns, employee errors, supply delays, poor customer service).

    • Mnemonic/Memory Aid: Think FOSH for the quadrants: Financial, Operational, Strategic, Hazard/Property.

VII. Risk Identification Checklist (Examples)

  1. Potential Business Risks (Be ready to identify them):

    • Damage to reputation

    • Cyber Attacks

    • Economic slowdown

    • Failure to innovate

    • Business Interruption

    • Increase competition

    • Liquidity risks

    • Market factors

    • Hazardous Workplace

    • Strategic Tip: This list isn't exhaustive but covers common areas. Think about internal vs. external factors when identifying risks.