What are the Steps Involved in a Composite Risk Management Process?

Composite Risk Management or CRM is the primary decision making process for identifying hazards and controlling risks. It is determined by a composite risk index that calculates the impact of a specific risk event and multiplies it against the probability of occurrence. The technique of CRM was first evolved in the army but now followed by many entities exposed to a wide range of threats and varying operating environments. Such entities use CRM as creative measures of positive protection from uncertainties.

The 5 steps in any CRM Process

1. Identify Hazards

2. Assess Hazards

3. Develop Controls & Make Decisions

4. Implement Controls

5. Supervise & Evaluate

 

What Is the First Step in the Composite Risk Management Process?

In a process of composite risk management program, the first step involved therein is “Identifying Hazards.” Firstly, the hazards are categorized in five ways as per their probability or chances of occurring. They are:

(1)    Frequent

(2)    Likely

(3)    Occasional

(4)    Seldom

(5)    Unlikely

Once the probability of the hazards have been identified, it is important to know their severity on the risk management program. To learn that they are further processed and classified as per the following:

(1)    Catastrophic

(2)    Critical

(3)    Marginal

(4)    Negligible

Assess hazards to determine risks. Further, assess the impact of each hazard in terms of potential loss and cost based on probability and severity. After identifying the probability and severities of the risks and hazards, the risk management process is set at in any of the following modes:

(1)    Extremely High

(2)    High

(3)    Moderate

(4)    Low

What Is the Last Step in the Composite Risk Management CRM Process?

The fifth step in the CRM process is to ‘Supervise and Evaluate’.

Here one needs to consider the followings:

  1. All aspects of current and future situations, environments, and known historical problem areas.
  2. Enforce appropriate standards and controls
  3. Evaluate the effectiveness of every system of control and implement necessary changes required.
  4. Use feedback from your lessons learned in the future planning to develop the right decision making process.

 

About the Author

Sandra
I am working as Editor in Chief for Financeninvestments.com. Writing on Financial Topics is my passion. You can find me on , Seeking Alpha Instablogs or join our Facebook Community, s. FNI is a great Community for financial bloggers and writers. Get everything you wanted to know about your finance and investment related matters such as mutual funds, banking, retirement, economics and much more.

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