Risk analysis can be defined as a process of defining, analyzing the dangers to individuals, businesses and government agencies caused by adverse human and natural events. (Damore 2006). It is done in order to tackle all the possible scenarios that can occur during a project and risk planning includes analyzing the likelihood of a risk’s occurrence, the consequence and perception. The methods used to tackle such an issue can be quantitative and qualitative. Though the qualitative analysis allows the introduction of bias, quantitative analysis is quite complex and hence should be carried out for large, expensive and complex projects only.
In order to carry out the risk analysis, it has to be identified the level of risk so that the appropriate risk treatment can be applied. This is done through the process called “Risk Evaluation”, and according to the ALARP principle, risks will only be accepted if the cost of treating them is too great. Risks of lower proportion are only meant to be treated if the benefit is greater than the cost. However, by merely ignoring a risk, it cannot be said that the risk would disappear or eventually would become a greater concern for the project manager.
Once the risk has been recognized, the appropriate risk treatment is implemented. This process includes categorizing the various risks and then deciding on the appropriate strategy to tackle the issue at hand. While in certain instances, pro-active strategies are enforced in others, contingency planning has to be done in order to eliminate the risk whenever it occurs. There are standard treatment measures including avoidance, reduction of risk, transferring the risk and retention.
The first one means dealing with risk in different ways, either by not doing a risk due to the high-risk value attaché do it or simply looking for an alternative methodology to do that specific task. Reduction of risk is a pretty self-explanatory term. Transferring the risk is, however, a more complicated form of risk treatment as it is done in situations when someone else has the expertise to deal with it better. It doesn’t result in complete elimination but merely results in involving different people of better expertise. The last treatment; Risk retention, refers to all those risks that are left over after the previous risk treatments have been carried out. Using an econometric term, residual-all those risk residuals that are tacked through contingency planning measures. (Standards Australia HB 2004).
Various risks can occur during the implementation of the project being proposed by the report, including validity, return of stocks, completeness, periodical entry of stocks, location of delivery, improper storage of goods, FIFO policy and the legalities involved with the implementation of such a procedure. The first two risks can occur when inappropriate purchase orders are made, and incorrect inventory records are maintained. As a result, the excess quantity of certain goods is kept, while in other cases, the quality of stock is dissatisfactory. To deal with such a situation, valid purchase orders should be made, and proper inspection of all goods should be done in order to uphold the quality of the stocks. Defected items should be returned promptly.
The other two risks, completeness and periodical entry of goods, deal with incorrect entries due to which erroneous receipts are made. To avoid such a situation, proper entry procedures should be introduced with accurate data entry. The next two risks, location of delivery and improper storage of goods, can be tackled by having appropriate strategies for the storage of goods and proper entries made with regard to the delivery destinations. The last two, FIFO policy and the legal matters, should be strictly adhered to by having updated records, and all activities have to be in line with the appropriate policies.
References
Standards Australia (1999). Risk Management. Australia: OB, 007.
Techtarget (2003). Risk Analysis. Web.