Question

Risk is inevitable. How do we measure it? What can we do to mitigate risk? How is inventory level a prospective risk? How are accounts receivable a prospective risk

Answer 1

There are 4 ways to handle risk in a project:

• Avoid: Try to avoid risk at the most. Usually risk has an adverse effect on the project. Easiest way to handle a risk is to avoid it.
• Mitigate: If risk cant be avoided, it must be mitigated i.e. must be addressed in a way that causes the least damage or loss to the project.
• Transfer: Risks can also be transferred but the cost of transferring is usually quite high.
• Accept: If the risk can’t be addressed in the above 3 ways, one must have to accept it and its implications.

Risk in a business or a project can be measured in the following ways:

• Conduct a scenario analysis
• Develop a risk scorecard
• Estimate the likelihood of any kind of risk
• Track the frequency of loss in the business

Risk Mitigation strategies:

• Acceptance: One must estimate the risk implications on the project and if the stakes are not too high, it can be accepted
• Avoid: Every plan must have a contingency plan to avoid risks. Requirements, resources and processes can be altered to avoid any kind of risk.
• Control: Risk control can be done by implementing ways to reduce its impact
• Transfer: Risk transfer to another stakeholder can be done, but the resources involved is quite high
• Monitor: Keep a check on risk characteristics. This way the impact of the risk can be minimized.

Prospective risk management is risk assessment. The purpose and objective of risk assessment is to identify the probable risks that can infect the smooth flow of business. There can be many risks associated with inventory level and accounts receivable like creditability and accuracy risk, risk of fraudulent representation, etc. Therefore, inventory level and accounts receivable qualify for prospective risk management.