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In this lesson,

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you'll learn about the risk register.

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Risk management is an integral part of any project

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or business operation that involves identifying, assessing

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and prioritizing uncertainties

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that could potentially affect the achievement of objective.

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One of the most effective tools used

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in risk management is the risk register.

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Now, this includes a list of key risk indicators

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the risk owners, and the risk threshold.

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We will also discuss some other related concepts such

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as the risk description, risk impact, risk likelihood

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risk outcome, risk appetite, risk tolerance, and risk level.

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So what is a risk register?

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A risk register is also known as a risk log.

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It is a document that records details

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about identified risk, including their description,

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impact, likelihood and mitigation actions.

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It serves as a crucial tool for communication

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and helps in tracking and managing potential risks

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throughout the project lifecycle.

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A risk register might also resemble

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the heat map risk matrix.

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A risk register should be shared between shareholders

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so that they can better understand the work they manage.

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The risk register will contain several key areas

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including the risk description,

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risk impact, risk likelihood, risk outcome, risk level

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and the cost of each risk identified in the risk register.

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The first step

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in creating a risk register is to describe the risk.

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This involves identifying the risk

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and providing a detailed description of what it entails.

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The description should be clear and concise

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enabling anyone reading the risk to understand the risk

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without requiring additional information.

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Second, we have the risk impact.

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The impact of a risk refers to the potential consequences

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if the risk actually takes place.

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It could be in terms of cost, time, quality

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or any other critical project objective.

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The impact is usually rated on a scale,

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i.e., low, medium, high,

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depending on the severity of the potential consequences.

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Third, we have the risk likelihood,

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likelihood or probability

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is the chance of a particular risk occurring.

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Like impact, it's also typically rated on a scale.

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The scale could be numerical, just say one to five or one

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through 10, or descriptives like rare, unlikely, possible

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likely, almost certain.

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Fourth, we have the risk outcome.

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The outcome is the result of the risk, if it occurs,

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it's directly related to the impact

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and likelihood of the risk.

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The outcome helps in understanding the overall effect

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of the risk on the project.

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Fifth, we have the risk level or threshold.

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The risk level or threshold is determined

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by combining the impact and likelihood.

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It helps prioritize risk in deciding which risk

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require immediate attention, and the risk level

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can be categorized as high, medium, or low.

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Six, we have the cost.

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The cost of a risk is the financial impact it could have

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on a project.

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It could be the cost incurred

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if the risk incurs or the cost of mitigating the risk.

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Now, I mentioned that one of the things contained

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in a risk register is the risk level or threshold.

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But before we can determine the level

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of risk to record it as high, medium or low,

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is crucial to identify the tolerance level

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and risk appetite of your organization.

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The risk tolerance or risk acceptance is the degree

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of uncertainty an organization

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or individual is willing to handle

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while achieving their objectives.

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It is the maximum amount

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of risk that they are prepared to accept.

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Tolerating or accepting the risk means

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that no countermeasures are defined because the level

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of risk does not justify the cost

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or because there will be unavoidable delays

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before the countermeasures are deployed.

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Simply, the organization chooses to not do anything

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about the risk.

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Risk appetite is a key concept in risk management,

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that refers to the amount and type

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of risk an organization is really to pursue

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or retain in order to achieve its strategic objectives.

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It essentially reflects the organization's approach

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towards risk taking.

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There are three main types of risk appetite,

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expansionary, conservative, and neutral.

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An expansionary risk appetite indicates

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that the organization's willing to take

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on more risk for the potential of higher returns.

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This approach is often seen

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in aggressive growth oriented businesses.

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On the other hand, a conservative risk appetite suggests

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that the organization prefers to take less risk

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even if it means accepting lower returns.

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This is common in businesses that prioritize stability

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and long-term sustainability.

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Lastly, a neutral risk appetite signifies a balance

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between risk and return.

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Organizations with a neutral risk appetite aim

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to strike a balance

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between taking calculated risk and ensuring steady growth.

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By identifying the tolerance level

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and risk appetite upfront,

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organizations can effectively categorize

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and prioritize risk.

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This helps them to align the risk management efforts

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with the overall strategic objectives

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and ensures that the resources are utilized effectively.

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Now that we have a basic risk register completed

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we need to add two or more things to it.

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The key risk indicators and the risk owner.

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Key risk indicators or KRIs

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are critical predictive metrics that organizations use

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to provide a early signal of increasing risk exposure

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in various areas of the enterprise.

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Key risk indicators serve as a barometer

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of risk or safety levels providing a forward-looking view

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of potential risk and are often associated

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with the organization's risk appetite.

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Key risk indicators are used to measure the potential impact

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and likelihood of a risk, allowing organizations

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to take proactive steps

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to manage the risk before it escalates.

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They're typically tied to the organization's objectives

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and are used to monitor changes in the level of risk

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that can affect the ability to achieve these objectives.

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For example, in a banking institution,

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a key risk indicator could be the number

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of loan defaults in a given period.

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A sudden increase in this key risk indicator

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might indicate a higher risk of credit default

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which could prompt the bank to investigate

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and take action to mitigate this risk.

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Another important thing to document

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in your risk register is the risk owner.

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The risk owner is the person

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or group responsible for managing the risk.

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They are responsible

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for monitoring their risk, implementing mitigation actions

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and updating the risk register as necessary.

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For example, a risk owner could be a project manager

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in a construction project.

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Now, in this particular context

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the project manager would be responsible

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for identifying potential risks

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such as delays due to bad weather

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or cost overruns due to fluctuating material prices.

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They would monitor these risks,

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implement mitigation strategies like scheduling work

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for dry weather, or locking the material prices in early

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and update the risk register as necessary.

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The project manager as the risk owner will be accountable

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for managing these risks

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and ensuring the project stays on track.

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So remember, the risk register, the risk appetite

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and key risk indicators are three pivotal elements

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in effective risk management.

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The risk register serves

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as a comprehensive document that records

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and tracks potential risk,

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facilitating clear communication and effective management

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of uncertainties throughout a project's lifecycle.

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Risk appetite, whether expansionary, conservative

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or neutral guides and organization's approach to risk taking

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influencing how risk are categorized and prioritized.

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And lastly, we have KRIs

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which provide an early warning system for potential risks

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allowing organizations to proactively manage risk

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before they escalate

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thereby aligning risk management efforts

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with strategic objectives.

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Understanding and effectively utilizing these components

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can significantly enhance an organization's ability

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to navigate uncertainties and achieve its objectives.