4.3 Chapter Summary

Chapter 4: Risk Identification explores the critical process of identifying potential risks that could impact an organization, either positively or negatively. The chapter outlines that after scanning the environment, risk identification is the next crucial step in risk management, defined by the ISO as finding, recognizing, and describing risks. It emphasizes the importance of a holistic approach to risk management, where risks are managed across the organization rather than isolated within individual departments. This approach, known as Enterprise Risk Management (ERM), integrates hazard, operational, financial, and strategic risks, allowing organizations to understand how different risks interconnect and influence each other. For example, a fire at a distribution center could disrupt IT systems, causing cascading operational risks.

The chapter details various types of risks: known, emerging, inherent, and residual. It also explains two primary approaches to risk identification—top-down and bottom-up—each with its advantages and disadvantages. Effective risk identification strategies involve a team approach, including brainstorming, workshops, SWOT analysis, document reviews, root cause analysis, physical inspections, and expert opinions (e.g., Delphi technique). Additionally, the chapter introduces tools such as the risk register and risk map to organize and visualize risks, emphasizing the need for organizations to assess, prioritize, and respond to risks based on their likelihood and impact. These tools help in creating a comprehensive risk management framework, guiding organizations in maintaining risks within their risk appetite and addressing those that exceed acceptable levels.

OpenAI. (2024, July 2). ChatGPT. [Large language model]. https://chat.openai.com/chat

Prompt: Please take the chapter content in this document attached and summarize the key concepts into no more than two paragraphs. Reviewed by authors. 

• Bottom-up approach has the advantage of providing an abundance of information from personnel working within and throughout the organization.
• Emerging risks: risks that are not known to the organization.
• Enterprise Risk Management allows an organization to holistically manage all its key risks as well as opportunities that might exist.
• Holistic risk management allows the organization to see how potential risks and opportunities fit together across the four classifications of hazard, operational, financial and strategic risks.
• Inherent risks: risks that have not been managed or treated.
• Known risks: risks that the organization knows about or that have previously affected the organization.
• Residual risks: the risk that remains after the risk has been managed or treated.
• Risk identification is defined by the International Organization for Standardization (ISO) as the “process of finding, recognizing and describing risks.”
• Risk register is a risk management tool that identifies all the risks in an organization across individual scenarios, processes, sectors and locations.
• Top-down approach is when the senior management in the organization makes decisions on the risks that can have a positive or negative effect on the organization.