In the context of facilities management, the word 'risk' is usually associated with health and safety. In reality, risk can cover a host of other areas.
In this article, we’ll have a brief look at the different types of risk that you may need to consider as a Facilities Manager.
What is Risk?
A risk is any threat that an event or action will adversely affect the business and its objectives. Risk can be defined as the combination of the probability of an event occurring and the consequences if that event does occur. This gives us a simple formula to measure the level of risk in any situation.
Risk = Likelihood x Severity
Likelihood and Severity are usually given values of between 1 and 3 or 1 and 5 resulting in a grid. An example of a 5 x 5 grid can be seen below:
Risk to a business can come from within, for example through the actions of employees, the decisions of management or the choice of cash flow and accounting policies.
There are also external threats – risks posed by factors beyond the control of the company or its directors.
Risks can be categorised under the following four headings:
Internal – Liquidity and cash flow
External – Interest rates Foreign exchange Credit
Internal – Research and development, Mergers and Acquisitions integration
External- Intellectual Capital, Competition, Customer Changes, Industry, Changes, Customer demand
Internal – Accounting controls, IT systems, Recruitment, Supply chain
External – Regulations, Culture, Board Composition
Internal – Employees, Properties, Public Access, Products and services
External – Contracts, Natural events, Suppliers, Environment
Source: The Risk Management Standard – IRM, Alarm & AIRMIC Stephen Womack 2006
Some risks have traditionally been given more attention than others. The danger of a factory burning down, for example, is a clear threat to the future of any business.
Other risks are more subtle, such as overly generous credit terms for customers, lax internal accounting controls or even a slight change in the market.
Therefore, other possible considerations should be taken into account.
- Occurrence – when is the risk likely to occur
- Urgency – how much mitigation time is there
- Manageability – how easily can the risk be handled
- Dependencies – does it follow or trigger other events
- Proximities – how close is the risk to the personnel well-being of employees.
All these factors may impact on the prioritization of dealing with the risks.
The correct identification of risk is vital if the risk is to be mitigated. An event is only a risk if there is a degree of uncertainty associated with it. Let us consider a Project Management example to illustrate the point.
The value of money and therefore the cost of the project will change over the course of the project – through experience it is safe to say that this is certain. But by how much – this is uncertain and therefore this is where the risk lies.
When identifying risk, make sure you describe the risk itself and not the cause or the effect.
Risk management is a key part of a facilities manager’s role. Health and safety is the obvious example, but remember that there are risks involved with many other activities which need to be properly assessed and controlled.
IWFM (BIFM) Qualifications
This article relates to the following IWFM (BIFM) Qualification Units:
- IWFM (BIFM) Level 3 in Facilities Management
- FM3.05 Health and Safety Responsibilities in Facilities Management
- FM3.13 Contribute to Disaster Recovery and Contingency Planning
- IWFM (BIFM) Level 4 in Facilities Management
- FM4.05 Managing Health and Safety in own area of Facilities Management
- IWFM (BIFM) Level 5 in Facilities Management
- FM5.04 Risk Management in Facilities Management
- IWFM (BIFM) Level 6 in Facilities Management
- FM6.02 Facilities Management Governance and Risk