Risk identification

It goes without saying that risk identification is vital for effective risk management. In order to manage your risks effectively, you have to know what they are. The really important thing during risk identification is not to miss any risks out. You can decide to ignore some of them at a later stage, after you have assessed them, but they all be included at this stage.

There are a number of different techniques that can be used. The ideal is probably to use a combination, and work with outsiders as well as people who are involved in the business and know it well. That way you can make good use of people's expertise while reaping the benefits of a fresh viewpoint. Useful techniques include various brainstorming methods as well as systematic inspections and process analysis.

Whatever technique (or techniques) you use, it is important to provide an audit trail so that you can be sure of what happened and that no risks were omitted.

Resources

RAMP

The Institution of Civil Engineers and the Faculty and Institute of Actuaries have produced a process for risk analysis and management for projects known as RAMP. Its website is at http://www.ramprisk.com/. A simplified version of the process is described at http://www.actuaries.org.uk/Display_Page.cgi?url=/ramp/index.xml.

A Risk Management Standard

Produced by The Institute of Risk Management, in conjunction with ALARM (The National Forum for Risk Management in the Public Sector) and airmic (The Association of Insurance and Risk Managers). It is available from their website at http://www.theirm.org/publications/PUstandard.html.

Risk Management, by Andrew Holmes

A book in the ExpressExec series. It gives a brief overview of several aspects of risk management, rather less biased towards banking than many other books (and also much shorter). It covers a somewhat eclectic range of topics, and has a useful list of resources. Visit its page at Amazon.

Mastering Risk Volume 1: Concepts

Edited by James Pickford, this book is a collection of chapters by different authors that first appeared as a series in the Financial Times. The chapters vary in quality, but most are useful to some degree. Some chapters in the book tend to assume a banking background. There are five chapters on operational risk, somewhat less banking oriented than many of the other chapters. It has a useful overview chapter on credit risk, Lenders and borrowers demand a creditable system by Suresh M. Sundaresan. There is a useful chapter on enterprise risk management, Total strategies for company-wide risk control by Lisa Meulbroek. Visit the page for this book on Amazon.

Managing Operational Risk, by Douglas G. Hoffman

This is a major tome, giving "20 Firmwide Best Practice Strategies". Hoffman's background is in banking, and the book certainly concentrates on that industry. He does make an effort to extend the range, though. This is an extremely comprehensive book, a bit difficult to make one's way through at times. It contains many lists of key points, which are made slightly less useful because each list is so long. Visit the page for this book at Amazon.

Risk Management, by Michel Crouhy, Dan Galai, Robert Mark

This is another book written primarily from a banking viewpoint. It has a whole chapter on risk management in nonbank corporations, and mentions the issues in some of the other chapters. Its treatment of credit risk covers credit rating systems, and distinguishes several different measurement approaches. It has a chapter on operational risk. This book emphasises the need for risk management systems. Visit its page at Amazon.

Mastering Risk Volume 2: Applications

This book, edited by Carol Alexander, is a collection of chapters by different authors that first appeared as a series in the Financial Times. The chapters vary in quality: some of them are rather more useful than others. There is an unstated bias towards banking. It has four chapters on operational risk, covering measurement and modelling as well as an overview chapter. There are several chapters on different aspects of modelling credit risk. Visit its page at Amazon.