Question asked by Chris Harley
AFERM Experts Say...
At the most fundamental level risk is defined by the Internal Organization for Standardization (ISO), which says risk is the impact of uncertainty on objectives. There are three important pieces to that definition in order of need: objectives, uncertainties, and impacts.
Understanding risk begins with objectives and the plans put in place to attain them. Stemming from those plans are the uncertainties in executing those plans. Uncertainties have the potential to impact the plans and subsequently the ability to achieve your objectives.
It is important to note that you can’t manage uncertainties themselves, but you can manage how you respond to them. That is where risk management comes in. Risk management is a collection of practices that can help you identify uncertainties, prioritize objectives and plans to identify which uncertainties to address, and determine the appropriate response or non-response.
The particular practices used will vary depending on the enterprise and its objectives. For example, the homeowner’s ‘enterprise’ objectives may include minimizing catastrophic loss from a wide range of uncertainties. As such, taking out homeowner’s insurance is a contingency response to those risks. Conversely, an insurance company’s objectives would include profitability and growth. Risk Management practices may include demographic analysis, damage assessment techniques, and probability simulations. Responses may include insurance for the insurance company, also called reinsurance.
My advice is to begin with a fundamental understanding of risk management as the principles are the same for the individual and the enterprise. The Project Management Institute, the Risk Management Society, the Risk Management Association, the Institute of Risk Management, and of course, AFERM are all excellent sources for getting started. The AFERM Summit held each year (October 29th and 30th in downtown D.C.) is a great opportunity to network with other risk management professionals.
Thank you for your question Chris, and good luck in your career!