RISK MANAGEMENT

Risk Management

Risk Management

Introduction

Project risk management applied to project risk management involves the analysis of the objective functions of the project in their interaction with the project variables. These variables - for instance, cost resources or other factors - have a dynamic behavior and they present different degrees of uncertainty through time. In consequence, the achievement of the objective, which has a strong relationship with these variables, is also uncertain. We may define "uncertainty" as the difference between the data required and the data already possessed. Some other factors adding uncertainty and influencing variability on projects are lateness in taking a decision, the complexity of the decision, and lack of control during the experimentation phases. Uncertainty is generated not only because of context variability but also because of ambiguity. They present some examples such as the ambiguity of the priorities and objectives of the project, or the ambiguity of bases to estimate the project's parameters. Optimism generates unrealistic estimations or status reports, which are the basis in taking a decision, increasing the probability of a project failure.

Discussion

In finance and business, the term risk has several meanings. Sometimes it refers to the volatility of an investment or the likelihood that a certain use of money will cause unpredictable losses or gains (Bessis, 2002). Financial risks managers are often responsible for investment strategy. In social science, natural science, and technical fields, risk is often viewed as an index of the severity of a particular harm and the chances it will adversely affect people or the environment. For instance, people can be helped by a new pesticide that keeps their crops from being eaten by pests, but pesticide use can be harmful if those applying it fail to follow instructions or if it is manufactured in an area that lacks the infrastructure to support production of complex products (Bessis, 2002). It has been said that “Economists look at the world from a perspective of scarce resources, while actuaries are focused from a perspective of risk” (Bessis, 2002).

Risk management encompasses the activities dealing with risks after they are identified and evaluated (Crouhy, Galai, Mark, 2000). Risk management, as well as risk assessment and risk communication, are part of the comprehensive term of risk governance, which is a systematic approach toward coping with risks under participation of all relevant actors (government, companies, the scientific community, nongovernmental organizations, and the general public). Risk management starts as ...