What is a Risk Assessment Model

Narendra Kumar

04 Nov, 2019

Risk Assessment Model

It will be ideal to know about the risk before we understand the risk assessment model in any business or project. Understanding the risk will help to adopt a suitable model for risk mitigation.

What is the Risk Management?

Like many other management processes ‘Risk management is also a systematic process of identifying, analyzing and responding to business/project risk.’ This may further be divided into a number of sub-processes. They are used as the basis for the model in this guide:

• Risk identification

•  Qualitative risk analysis

• Quantitative risk assessment

•  Risk response planning

• Risk monitoring and control

In fact, risk management planning is a process in which one identifies the overall approach to be taken to risk management. The risk management comes in all shapes and forms in the business or project.

As it is a universal fact that the risk is inherent in everything that we do and that risk management is simply helping us to make better decisions. In simple words, risk management is helping us run projects in the ‘real’ world. Many times our plans are formulated on the basis of an ideal situation where everything works according to our plan. This may be a result of naivety or optimism in the world.

The best risk planning in the world is of little use unless a clear picture of how the situation in the project is developing in reality. Thus, it is, keeping track of the identified risks, monitor the effectiveness of risk, responses and identify new or changed risks.

One has to be on the lookout for the early warning signs or ‘triggers’ received/ identified in business.

A key role of the project manager is also to communicate risk to the shareholders/stakeholders.

It may be noted that risks are not always condemnable because some of them can be turned into opportunities for the business and may lead to new avenues and prospects. But it is also a hard fact now that risks cost money and for one must plan and set realistic budgets.

Thus, there is a need to create a risk management model.

What is Risk Management (assessment) Model?

The Risk Assessment Model is one of the tasks to undertake at the planning stage, considering all the major problems in this business and to reduce/ mitigate them. The number and complexity of these likely problems will definitely differ according to the size and complexity of the business to be undertaken. However, the principles for the risk management model are the same whether it is a small/trivial risk occurring once or big business project risk involving the heavy finance.

The three main forms of Risk Assessment Model will originate from the group of risk types, i.e.

• Market risk,
• Credit risk and
• Operational risks

Which many banks and financial institutions^[1] will concern themselves with?

Other financial risks that are not included are generally defined as liquidity, legal, reputational risks to name but a few. The basic stages of this process which are repeated in a number of models are:

1. Risk definition,
2. Its analysis and assessment,
3. Risk manipulation and observation plus control.

This will help model risk managers to identify the risk, evaluating the risk, control the risk, measuring and reporting the risk to the committee. Risk Managing (RM) Committee of the company or NBFC will do the needful in this matter by taking the required measures. This allows undertaking operations which increases the probability of success and decreases the possibility of failure in the business. Efficient risk management is an elementary ingredient of efficient management in the business.