Aust DoD

1 Risks associated with business, government and defence instructions

Risk is often defined as a potential loss or danger.

Consequently, to be successful, organisations need to know:

	what the events are that can affect their success (hazards)
	the likelihood and consequence of these events and
	what actions they can take to reduce their exposure to them.

business, government and defence instructions

internal requirements:

policies

procedures

instructions

externally promoted policies and claims

government regulations

purchase orders, service level agreements, technical specifications & contracts

referenced documents, standards & codes

In the context of these business, government and defence instructions, some of the events that could affect your organisation’s success include:

	1 Sub-standard understanding of requirements
	2 Sub-standard compliance checking & auditing
	3 Sub-standard compliance planning
	4 Sub-standard development & drafting
	5 Sub-standard laundering
	6 Sub-standard choice comparison
	7 Sub-standard changed and original clause comparison
	8 Sub-standard compliance programming
	9 Sub-standard compliance costing
	10 Sub-standard development of workflows and procedures
	11 Sub-standard development management alarm bells
	12 Sub-standard completion of prescribed notices and forms
	13 Sub-standard preparation and review of contractual claims
	14 Sub-standard dispute resolution
	15 Sub-standard translation into other languages
	16 Mass media exposure of sub-standard performance

Organisations need to decide whether they should take these events (hazards) seriously or not.

This is often known as:

	determining their risk exposure or
	evaluating their risk.

Risk can be determined by considering both the consequence and likelihood of each event occurring.

Analysis of the consequence and likelihood of events may be either qualitative or quantitative as shown in the following table.

Qualitative

Qualitative analysis uses words or descriptive scales to describe the magnitude of the likelihood and the consequence.

This style often uses personal judgement, estimation and assumptions.

e.g. Rare - Unlikely - Moderate - Likely - Almost certain

Quantitative

Quantitative analysis often involves:

	financial accounting
	statistical analysis
	staff & supplier competency testing (Mustor Metric Testing MIS 4100) or
	staff & supplier performance prediction (MIS 8000).

e.g. $, ₤, €, average, standard deviation, percentiles, Mustor Metrics

Multiple consequences

An accident may have multiple affects such as:

	the health of employees
	the environment and
	the production capability of the organisation (both the quality & the quantity produced) and
	the financial status of the organisation.

Hidden consequences

The consequences of some events are not always obvious. For example, the consequence of a dispute, is the effort and resources required to resolve it. If the dispute is resolved by direct negotiation then the consequence of the dispute could be considered insignificant. However, should the dispute require arbitration to resolve it, then the consequence could be considered major. Should the dispute require litigation to resolve it and the legal fees from having to pay the other party’s expenses are high, the consequences could be considered catastrophic.

Compounding consequences

Events often have compounding consequences. For example:

	an accident may cause loss of production capability that may lead to a contractor bearing the cost for late completion.

	discrepancies, ambiguities, loops and illogical clauses in the technical specification may cause the supplier to claim for variations. This may increase the cost and the duration of the contract, which could cause them to run over budget and/or bear costs for late completion to their client.

2 Graphical representation of risk

The level of your exposure to risk can be graphically represented. The result is basically an area calculation. That is, the risk exposure level is a product of the consequence and the likelihood of the event occurring.

With a graphical representation, you can see very quickly that the more serious the consequence, and the higher the likelihood of the event occurring, the greater the risk. For example, the figure below shows, that as event A has a greater consequence and likelihood of occurrence than event B and C, it has a higher risk exposure level.

3 Risk reduction

Once the events that may affect your success have been identified, and the risk level determined, each organisation is in a position to decide whether they will either accept the risk or act to reduce it.

Your organisations risk level may be reduced by either:

	reducing the consequences of an event once it occurs or
	reducing the likelihood of the event occurring in the first place.

The following figures graphically display these concepts.

Reducing the likelihood of hazardous events may involve:

improving business, government and defence instructions such as:

internal requirements

policies

procedures

instructions

externally promoted policies and claims

government regulations

purchase orders, service level agreements, technical specifications & contracts

referenced documents, standards & codes

improving employees with training in document:

interrogation

compliance checking

compliance planning

translation

dispute resolution

improving the selection of:

employees

suppliers

contractors

translators

lawyers

consultants

Reducing the consequence of hazardous events may involve improving:

	developing mitigation procedures
	purchasing compensating Insurance

4 Effects of relaxation

Should your staff and suppliers relax on the efforts to reduce the likelihood and consequence of events that may affect their success, their risks increase. The following figure graphically displays this concept.

5 Risk management standards

There are a number of generic risk management standards around the world. The following table details some of the more popular standards as well as the organisations involved in there development.

COSO ( USA )		Committee of Sponsoring Organisations of the Treadway Commission www.coso.org
A Risk Management Standard (UK)		The Association of Insurance and Risk Managers (AIRMIC) www.airmic.com
		Institute of Risk Management (IRM) www.theirm.org
		ALARM The National Forum for Risk Management in the Public Sector. www.alarm-uk.com
AS 4360		Standards Australia www.riskmanagement.com.au

This standard has been designed so that it can be equally used by your:

	employees
	suppliers
	contractors
	translators
	lawyers
	consultants

The Risk Management system (MIS 11 000) has been designed so that your staff and suppliers can either use it by it self (stand-alone) or ‘bolt’ it onto your existing system. The following figure graphically describes these choices.