About this Risk Management course
This free Risk Management course is split into five different sections. First, you will be introduced to a general overview and history of Risk Management. You will also explore future trends, as well as challenges and opportunities in the field. This course then ends with a “next steps” section for Risk Managers.
- What Is Risk Management?
- History of Risk Management
- Future of Risk Management
- Challenges & Opportunities in Risk Management
- Next Steps for Risk Managers
This free online Risk Management course directs you to free podcasts, videos, and resources, coupled with questions to aid in processing this complex field. Each section is created to encompass two to three hours of learning material.
Whenever you see this icon, be prepared to stop and read, listen, watch, and reflect.
At the end of each section in this course, there is an opportunity for further investment in the field of risk management. These suggestions offer books, courses, or certifications within a wide range of financial and time investments.
1│What Is Risk Management?
Risk management is about identifying and mitigating risk for an investment, project, or other types of ventures. A risk manager analyzes the possible losses associated with an investment. They then take the necessary action that matches their organization’s goals and tolerance for risk.
Here is an overview of a risk management plan that has a focus on agriculture. While risk management is generally associated with finance, it can and should be applied to any industry or sector, and doesn’t necessarily require the risk to be strictly financial. However, all types of risk have financial implications. For example, the Agricultural Risk Management Plan speaks about managing multiple types of risk, from marking to human to legal, as well as a straight-up financial risk. What other types of risks might an organization face, and what are the financial ramifications of those risks?
What is Meant by “Risk?”
Risk is simply either a positive or negative deviation from expectations. Risk managers understand that this means that the more risk involved, the higher the potential returns, although the reverse is also true. With higher risk also comes more volatility. One part of a risk manager’s role is taking steps to reduce this volatility.
There are a variety of types of risk management. Here are eight common types that most risk management falls under.
The First Nations Financial Management Board recorded a webinar that goes over the basics of risk management. This is a great overview of what risk management is and who is involved in risk management conversations. Before you listen, take some time to jot down a scenario or two where an organization, like a First Nation tribe, might encounter risk. Try to broaden your scope beyond simple financial risk! Are the risks you identified worth their potential benefits?
The Risk Manager
Risk managers are analytical. Much of their work is centered around conducting and mitigated risk assessments, which are highly detailed plans. This work involves analyzing statistics, reports, and trends, in addition to their client’s current policies. Risk managers must also understand their client’s objectives, as well as their tolerance for risk. Once a risk manager has put together a strategic plan, they’ll often be the one to present the plan to senior-level staff or boards. Once their plan is in place, risk managers usually conduct ongoing audits to ensure their plan continues to be useful and effective for the client.
If you’re curious about what a typical day for a risk manager looks like, here’s an illustration from one risk manager’s experience.
Steve Fisher is a professional kayaker; his job has a lot of risks involved. In Fisher’s TED Talk, he lays out how to prepare for something that’s never been done before. His advice is applicable to any type of risk, whether it’s to kayak some of the world’s most dangerous rapids or something more routine and mundane. He talks about how to demystify risk by breaking it down into small pieces and analyze the attainability of each of those pieces. After watching, take an example in your own life that feels risky or uncertain and apply Fischer’s principles. Does this change how you view the riskiness of the situation?
Risk management can be applied to any industry or sector. The process of building a risk management plan is a vital step for organizations to prepare well for the future. Whether you’re interested in traditional financial risk management or not, Udemy offers a one-hour course that covers the role of the risk manager and the importance of successful risk management. It covers how to identify, analyze, rate, reduce, and control risk in any number of situations, giving you the basics of how to manage uncertainty in any organization.
2│History of Risk Management
Games of risk have been around for thousands of years. Practices like the casting of lots, cleromancy, or dice games have ancient roots, and all contain a certain level of risk, though, without much of an understanding, it seems, of the concept of probability. Chance and risk were playthings of the gods and deeply couched in mythology.
Around 1654, however, Blaise Pascal and Pierre de Fermat, both mathematicians among other titles, engaged in correspondence around the question of how to divide the winnings when the players of a dice game must end before someone has won. This was a question that seems to have originated with some Italian thinkers in the 1500s. But their letter was what gave rise to probability theory, the basis of which risk management rests on.
As you watch this talk given by Keith Devlin, author of The Unfinished Game: Pascal, Fermat, and the 17th Century Letter that Made the World Modern, consider the wide-sweeping ramifications of probability theory in our modern world, including the sector of risk management.
Risk Management as a Career
Risk management has been a career longer than the job title. In ancient Rome, there were mutual aid societies that were the forerunners of today’s insurance companies. And precursors of life insurance agents, actuaries, were around in the 1700s in England. Risk management, as we understand it today, came about after World War II with the establishment of our current insurance system, which needed a way to understand risk. As it became apparent that insurance was a very pricey way to manage risk, insurance managers began to expand their scope of understanding. In 1955, a professor at Temple University, Wayne Snider, coined the title risk manager, since insurance managers were now much more focused on understanding and mitigating risks. Throughout the 1970s and 1980s, companies began to up their focus on risk management, and in the 1980s, international risk management was established.
As Keith Devlin mentions in his talk on Pascal and Fermat, it doesn’t seem many people have actually read the letter between the two mathematicians, despite the fact that this letter led to the creation of probability theory. Spend some time reading through the English translation of that seminal correspondence, providing an insight into the thought process that changed the world.
Pick up a copy of Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein. Berstein puts forth the idea that when humanity learned to predict and try to control risk, it was really the dividing line between modernity and antiquity. An understanding of risk helped ancient people understand that the world was not simply random events or the whims of the gods.
For a much more in-depth look at the history of risk management as a discipline read Risk Management: History, Definition, and Critique by Georges Dionne and The Evolution of Risk Management by Douglas Barlow.
3│Future of Risk Management
The future of risk management is here in more than one way, and it is ever-evolving. But, this also means that how organizations talk about risk is evolving too. New tools and strategies are being created, which can help organizations lead out of innovation from risk rather than fear of risk. Deloitte, a Big Four accounting organizations, named what they see as 10 trends that have the potential to shift the landscape of risk. As you read through these trends, are there some that you’re already seeing?
Risk Management in the Digital Age
As organizations continue to move toward more digitization through technology such as AI and cloud-based systems, this digital realm holds the potential to be one of the biggest potential risk factors. It is also one of the most valuable tools for risk managers. AI, for example, has the potential to more accurately assess risk, and digitization also increases efficiency for risk managers.
Read through this article on how to approach risk management in our digital world to gain a better understanding of how to use digitization for increased efficiency and effective risk management.
Risk Management during COVID-19
The global COVID-19 pandemic has impacted the field of risk management in deep and profound ways. Ideally, risk managers should have tools and techniques in their pockets to help their organizations respond to the crisis and mitigate the risk associated with the pandemic in as much as possible, given the continually changing situation. However, such a widespread, variable, and abiding situation was likely not foreseen by most risk managers, so now is the time when many will see how effective their risk management plans are when taken off their theoretical shelf.
The Institute for Risk Management has put together a checklist for risk managers to think about for their organizations. Note the seven different sectors they name as areas to think about regarding risk during this situation. After the Institute for Risk Management checklist, there is a webinar you can listen to at the very bottom of the page. This webinar on pandemic risk management covers prevention as well as ways to deal with the pandemic in the moment. Feel free to skip ahead to minute seven to avoid the initial technical difficulties they had.
Listen to this episode of the RIMScast podcast on what risk managers should know about the coronavirus. RIMScast is a podcast of The Risk and Insurance Management Society, Inc. As you listen, consider how past experiences and lessons learned can help risk managers respond to this, admittedly novel, situation. What recommendations are put forth?
It’s fair to say that the COVID-19 pandemic hijacked 2020 in many ways, throwing many plans and ideas for the future out the window. Nevertheless, many trends that had been set in motion have continued on. Here is one take on 2020’s trends to analyze. As you read, consider what was accurate and what wasn’t and the whys behind them. This was written before the pandemic hit, so it is interesting to note what predictions took hold and what didn’t, though obviously, those that didn’t might not have come to be even without the reality of a virus-riddled world anyway.
Pick up a copy of The Future of Risk Management. This book is a compilation of essays that look at previous research, new discoveries, and current questions to help risk professionals learn how to develop informed strategies to hopefully reduce losses due to catastrophes. The editors name that we are working within broken systems that lack an objective and holistic approach to risk.
4│Challenges & Opportunities in Risk Management
In the New Religion of Risk Management, Peter L. Bernstein writes that risk management, for all its benefits and importance, contains seeds of technological dehumanization. It is important that risk managers remember that the numbers they use to calculate risk are only tools. This culture of risk has become complex and ingrained, and it’s taken on life as a religion that values numbers generated by a computer meant to answer questions but not ask them. Bernstein sees three worrying trends here, and despite the fact that this piece was written over 20 years ago, you could argue that these trends are still applicable today.
After reading Bernstein’s article, consider how we see these trends playing out in society today.
“Black swans” are highly improbable events. Some recent examples include the attack on the World Trade Center towers on September 11, 2001, the 2008 financial crisis, the European debt crisis that followed in 2009, and the Brexit vote in 2016. The term “black swan” was coined by Nassim Nicholas Taleb and holds three characteristics; a black swan event is unpredictable and has sweeping consequences. The third characteristic is that in the aftermath, we come up with an explanation that makes it seem less unpredictable than it was at the time.
Listen to the lecture Taleb gave in 2010 and consider the ways we can better understand and predict black swans.
Many were quick to label the 2020 coronavirus pandemic as a black swan. Given what you know about the virus and it’s spread, would you agree? Taleb would not call it a black swan according to a January 2020 paper he co-authored. Rather, in a New Yorker article about the pandemic, he explained that it’s symbolic of an unstable global system.
There is never one story on anything. Historians view black swan events differently than, say, an investor. For an understanding of these different points of view, listen to this Black Swan podcast episode from Stratfor Worldview.
Innovation and Strategy
The ideas of innovation and strategic risk management are closely related and can provide opportunities for organizations. Strategic risk management helps risk managers more accurately predict the future and help leadership predict issues and downturns that may come up and be better prepared for how to respond. Strategic risk management teams also help organizations innovate by helping to manage the uncertainty that inevitably comes with trying new things. Risk managers provide opportunities for organizations to “fail fast” and learn from their mistakes and pivot toward new, innovative ideas.
Monica Merrifield is the Principle Advisor of Strategic Risk and Innovation for the YMCA, among other organizations. In a podcast episode put out by the Risk and Security Management Society, she talks about how risk managers can help engage innovation in their organizations by asking good questions and identifying underlying assumptions that can get in the way of and contribute to unnecessary risk. As you listen, consider the types of questions you would ask as a risk manager. How could you help an organization move toward innovation in a strategic way that understands and is able to manage and mitigate risk.
Because it deals with complex systems, risk management is itself a complex discipline. Rene Stulz is a professor of finance at Ohio State University, and he penned a paper on what risk management failures are and when they happen. After reading his paper, take a free course through SOAS University of London on risk management, which covers the ideas in Stulz’s paper as well as the role risk management plays globally.
Black swans have a history as long as humanity. If you’re interested in learning more about black swans throughout history, read this article from Stratfor on The Making of a Black Swan. You can also pick up a copy of Taleb’s book on the subject, The Black Swan: The Impact of the Highly Improbable.
5│Next Steps for Risk Managers
Risk Management Tools and Techniques
All organizations should implement risk management because all organizations face inevitable uncertainty and risks. While not every organization might have a designated “risk manager,” anyone can brush up on some tools and techniques that can help guide them through the process of creating a risk strategy and mitigating risk in their endeavors. The reality is, simple exercises your organization is probably already doing can easily be reimagined through the lens of risk management, like brainstorming or just playing a game of worst-case scenario.
If you’re searching for other tools and techniques to help get you or your organization progress in a risk management mindset, check out these suggestions, or these to help prepare a risk management plan.
Risk Management Process
Planning for the unknown can seem very theoretical, full of what-ifs. But the reality is, this planning is exactly what risk managers do and is, in fact, very practical. Using five steps can help risk managers put together a streamlined risk management plan: identify the risk, analyze the risk, prioritize the risk, treat the risk, and monitor the risk. Having these steps in place means that if something does go wrong, say on a project, you’re more likely to have a clear path forward instead of being thrown into complete disarray. It also helps people operate more effectively; it creates transparency, especially around budgets and legalities; and it offers space to be flexible and adapt, rather than panic.
Read through this overview of five steps to help guide you through the risk management process. Here is a lecture from Adelaide University on the Risk Management Process. Both resources cover the same steps, with some modifications, because while the general idea for building a risk management process is the same across the board, depending on what you’re dealing with, you’ll need to be open to flexibility in the best approach.
You might find it helpful to examine examples of risk outside your sphere of work or interest because such analysis can provide new frames of reference and new perspectives. Leaving nothing untouched, the COVID-19 pandemic of 2020 has already provided invaluable lessons for risk managers to apply moving forward. In this podcast by the president of Marsh Risk Consulting, listen as Micahel Poulos discusses lessons and opportunities in risk for organizations amid the COVID-19 pandemic. As you listen, consider how these lessons can be applied to your own context.
Sometimes some guidance can be helpful in new endeavors, like putting together a risk management strategy. Project Manager has created a free risk assessment template to help risk managers plan a sound risk assessment so their organizations can be prepared for what might be ahead. While this assessment template is geared toward IT, it can be altered easily enough to fit any area’s needs.
There are several professional organizations for risk managers out there. The Risk and Insurance Management Society is a professional organization that seeks to educate and advocate for the risk community across the globe. RIMS was founded in 1950 and has more than 10,000 members around the world. It provides education, professional development, and networking for its membership, who work in a wide variety of sectors, from nonprofit to government, and from industrial to service.
Beyond this free Risk Management course, there are many resources available to expand your risk management knowledge. You can also explore The Institutes, which offers education and resources, as well as research to help risk managers in their roles through certificates, classes, and professional development programs.
This is the end of our free online Risk Management course. We hope it gives you a good background on the topic!