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Integrated Risk Management

What is Integrated Risico Management All about?

Integrated Risk Management (IRM) is a methodology which supports management of organizations in the process of making decisions and drawing up a policy with regard to the risks that are possibly threatening the goals of the company. By applying IRM it becomes clear which risks truly matter and which measures can be taken to bring and keep these risks beneath an acceptable limit in a cost-effective way.

Why should you use IRM?

Are you risk aware?
Would you like to change over from a reactive strategy towards a pro-active approach?
Do you strive for complete solutions instead of sub-optimization?
Is your company quality driven?

If you said "Yes" to these questions, then it is time to contact RDA without any obligations. At this point IRM is a logical follow-up on your way towards a better position amongst your competitors.

Did you say "Yes" to some of these questions, then it is certainly time to contact RDA to discuss what benefits IRM may bring you, especially if topics as cost-reduction, productivity improvement and minimum risks rank high on your priority list.

Wat is the IRM-model?

The IRM-model has been depicted in figure 1 as a flow diagram. It consists of eleven steps and four decision points. The way the model is used is highlighted in the following section.

First, all possible risks, which could threaten the goals of the management (e.g. customer satisfaction, continuity, profitability, product delivery, etc), are addressed (steps 1, 2 & 3). After this analysis the first decision point is encountered.

Decision point 1
Is the listing of risks and existing risk-reducing measures complete?

Then the risk-levels, which are still acceptable, are determined (step 4) and the risk-reducing measures that already have been taken are listed. Then the risks are classified (step 5) and the most important risks further examined (step 6). This leads us to the second decision point where the question has to be answered weather the risks are indeed acceptable or not.

Decision point 2
Are the analyzed risks acceptable?
If there are unacceptable risks or at least action-demanding risks, new risk-reducing measures are prepared and the quality of the existing measures is evaluated (step 7). Also the time-span of the different measures is examined. After this a quantitative cost-benefit analysis is carried out (step 8): what are the costs of the measures and how effective are they? The word "effective" does not only imply to what extent the measures reduce the risks, but also the chance of a successful implementation. Risk reduction can be reached in several ways: by complete elimination of the risk, by reducing the chance of the occurrence, by minimizing the consequences, by transferring the risks on to others (insurance) or by "moving" the risk to an other risk that has more margin in relation to the limit of acceptance. Now the third decision point is reached.

Decision point 3
Does the desired risk-level, in view of the necessary measures, need adjustment? It could be as it happens that the proposed measures are so expensive, that implementation is not meaningful.

Finally the management implements, changes or eliminates measures based on the acquired insights (step 9). By using a restricted set of performance and risk-indicators, in time a clear insight will be gained in the development of the processes that need to be managed (step 10). This takes us to the final decision point.

Decision point 4
Is it to be expected that the determined risk-level will be reached with the new set of measures?

A feed-back to the step "Preparation of measures" assures adjustment if the accepted risk-levels still tend to be exceeded because of the fact that the set of measures has not given yet the desired effect or that there has been a change in business processes.

NRG experience with the IRM model

IRM serves as a model for the approach of the Group Risk management & Decision Analysis (RDA) which started in the early '70's with risk-and reliability analysis.
Particularly in the second half of the latest decennium there is a shift for RDA from technical applications to organizational applications. For instance analyses of maintenance organizations and manufacturing companies in the field of safety, health, environment, economy and quality to improve the process and procedures or to substantiate an investment in automation, which increases productivity and decreases risks. But also for the government analyzing new and existing laws and rules like fraud-proofness, for instance of the new license plates. These examples show the ongoing progress of this shift. Especially with ISO-certified companies improvements have been proven successful, with a relatively small effort.

Figure 1: Steps in the IRM-model (Dutch only)

Contactperson:
Dr. V.A. Wichers
NRG, PO Box 25, 1755 ZG Petten, Netherlands
tel: +31-224 564656, fax: +31-224 568490, e-mail: wichers@nrg.eu