What is Risk Management?
Risk can be defined as the effect of uncertainty on the achievement of an organization’s objectives. Risk management is, therefore, the process of identifying and managing this uncertainty, or risk, with the goal of achieving objectives. Effective risk management enables an organization or individual to increase the likelihood of achieving their goals/objectives, by enabling them to identify potential future events that may affect the achievements of their targets, and, where possible, put in place measures to reduce their impact.
UNDP’s Enterprise Risk Management is based on the International Organization for Standardization Internal Risk Management Standard (ISO 31000). The guidance in this Manual follows the process and definitions based on the ISO 31000 standard, and the following key definitions are used:
- Risk is an effect of uncertainty on objectives. This effect can be positive (supporting the organization or programme to achieve planned objectives) or negative (preventing the organization or programme from achieving its objectives). Uncertainty refers to deficiency of information or lack of understanding or knowledge about events. It is best practice to formulate risk in terms of “future event”. Objectives can have different aspects (such as financial, health and safety, and environmental goals, and can apply at different levels (such as strategic, organization-wide or project).
- Consequence is the outcome of an event affecting objectives. An event can lead to a range of consequences, and initial consequences can escalate through knock-on effects.
- Event is the occurrence or change of a particular set of circumstances. An event can be one or more occurrences, have several causes, and consist of something planned not happening.
- Likelihood is the chance of something happening. Likelihood can be measured or determined objectively or subjectively, qualitatively or quantitatively, and described using general terms or mathematically (such as a probability or a frequency over a given time period).
- Risk owner is the person or entity with the responsibility and authority to manage a risk.
- Risk register is a risk management tool that serves as a record of all risk identified by the project. For each risk identified, it should include information such as likelihood, consequences, treatment options, etc.
- Risk treatment is a measure to modify risk exposure, to provide reasonable assurance of achieving objectives.