Integrated Risk Management

Danger and Risk Management

Danger is inherent in all parts of society. Stakeholders should consequently design methods to mitigate the negative effects of risk occurrence or, if possible, prevent risk occurrence. As a result, risk management guarantees that enterprises and society as a whole operate in secure and financially stable environments. The Department of Homeland Security in the United States has a national response framework through which it develops policies to minimize and prevent threats (Department of Homeland Security, 2013). This paper examines certain crisis management models, theories, and applications, notably the Monte Carlo simulation.

Disaster Management Planning

The Department of Homeland Security defines disaster management planning as “prevention, protection, mitigation, response, and recovery” (2013). Prevention refers to the preventive measures taken to prevent imminent threats such as terror attacks and diseases. These measures can be in form of enhancing cyber protection to reduce the cases of cyber threats and chances of terrorists’ attacks as a result of poor security measures. Protection involves securing the nation against possible threats including natural calamities such as drought and earthquakes. Mitigation involves activities done to reduce the effects of loss/injury in case the risks occur. Response refers to emergency actions taken to save lives after the occurrence of risks. Finally, recovery involves the measures taken to enable the state/affected area to go back to its original state before the occurrence of the risk and if possible to improve its condition (Department of Homeland Security, 2013). It is therefore applicable in the entire FEMA planning system which involves “program management, planning, implementation, testing and exercises and program improvement”.

Structural-Functional System Theory

This theory emphasizes the importance of effective communication in crisis management (Bigley, 2001). Information should flow in all levels of an organization and should not be from superiors to subordinates only. This will promote transparency which is essential in preventing and responding to risks. At the event of a crisis, superiors should ensure that employees get efficient information concerning the crisis to enable coordination and save on time taken to act upon the emergency management plan. This theory can be incorporated into the FEMA planning system in the planning and implementation steps when stakeholders include it in the strategy adopted for crisis management and actually put it into practice.

Unequal Human Capital Theory

This theory shuns discrimination in the workplace and the society in general (Platt, 2016). Workplace inequality increases the chances of a crisis. Workers who are discriminated against in terms of salary increment, promotion opportunities, gender, and even race are likely to develop feelings of hatred towards the superiors in the organization and may end up badmouthing the organization to potential clients. This can consequently lead to reduced profit margins and market share which could have been avoided. Managers should therefore ensure that their organizations embrace an equality-promoting culture hence the theory is applicable in the planning and implementation of the FEMA planning system.

Integrated Risk Management

This refers to a framework through which risk averters can identify, manage, and monitor risks in a locality. It involves eight phases; “risk identification, prediction, modeling, analysis, mitigation, hedging, diversification, and management” (Mun, 2010). Risk identification involves evaluation of strategies to determine weaknesses. Risk prediction involves collecting data and forecasting. The third step is the creation of attack and financial models based on the data collected and available courses of action. Risk analysis is done using Monte Carlo simulation. Risk mitigation involves choosing effective courses of action and using them to reduce the impact of risks. Risk hedging involves reducing the exposure to risk by either preventing or lessening the occurrence of risks. Risk diversification is the choosing of an admirable portfolio and allocating resources according to priority and availability. Integrated risk management is of the most importance since it involves putting the theories into practice. Crisis emergency management planning for instance involves five phases which have excluded the identification of risk and prediction of its occurrence. It also excludes how these risks can be diversified to reduce their negative effects. IRM enables managers to embrace equality and improve their communication skills. It is also effective since it integrates Monte Carlo simulation to determine the interdependence of variables and other qualitative data relevant to prevent the occurrence of risks (Mun, 2010). It is applicable in all the steps of the FEMA planning system.

Monte Carlo Simulation

It is a mathematical technique that enables risk averters to design risk analysis and diverting models through forecasting and estimation (Mun, 2010). This technique picks variables randomly and determines their possible occurrences and how they can be influenced by other variables in the field in question hence enable researchers to design risk averting models based on the numerous possibilities of risk. Unlike traditional methods of crisis management, Monte Carlo simulation considers possible interdependencies among variables (Mun, 2010). Traditional tools were mostly dependent on single-point estimates which limited the area of coverage of estimation since it dealt with single variables such as sales or profits. Monte Carlo simulation can handle multiple variables and compare their impact on each other, for example, how profits are affected by sales, unit costs, consumer preferences, and tastes other than how profits are fluctuating in the market only.

Case Study Objective

The case study’s main objective is to venture into an event with the highest return on investment and low chances of cyber theft and other internet-related threats/risks (Department of Homeland Security, 2009). Creation of environment details involves identifying the available infrastructure and its susceptibility to attacks. This is achieved through the formation of partnerships and engagement in programs that enable the Department of Homeland Security to familiarize itself with the interdependencies of infrastructure in all the private and public sectors. The Monte Carlo simulation might have been used in this step since it provides possible outcomes when variables are altered. Creation of attack models is the use of the data collected in the first step to determine weaknesses in the infrastructure protection system. The creation of attack scenarios is basically determining the possible threats arising from the weakness in the existing security system and how they can be executed. Plans to counter these threats are then devised and their financial impact determined for an effective security measure to be adopted. According to Lyon, the financial impact of different investments is determined through the creation of a finance model (2014). The finance model consists of the costs of implementing the plans and the expected returns. The investment decision is arrived at using a cost-benefit analysis. The decision points are the effectiveness of the security measures and the costs of adopting them.

Conclusion

Crisis management is essential for the increase in safety outcomes. The existing crisis management models and theories provide guidelines for managers on how best they can handle risks. Monte Carlo simulation is most effective since it acts upon the traditional crisis management tools’ weaknesses and enables managers to act on feasible results hence prevent and mitigate risks accordingly. Traditional tools use single-point estimates and three scenarios; “worst, best, and normal scenarios” to predict risks hence lack accuracy and produce faulty results. Managers should therefore include Monte Carlo simulation in their crisis and emergency management planning to get accurate results and adopt effective safety programs.

Works Cited

Bigley, G. A., & Roberts, K. H. (2001). “The incident command system: High-reliability organizing for complex and volatile task environments.” Academy of Management Journal, 44(6), 1281-1299.

Department of Homeland Security. (2009). National Infrastructure Protection Plan: Partnering to enhance protection and resiliency.

Department of Homeland Security. (2013). National Response Framework.

Lyon, D. (2014). Modeling Security Investments with Monte Carlo Simulations. SANS Institute InfoSec Reading Room.

Mun, J. & Hausel, T. (2010). A primer on applying Monte Carlo simulation, real options analysis, knowledge value added, forecasting, and portfolio optimization by Johnathan Mun, Thomas Housel.

Platt, J., Prins, S., Bates, L., & Keyes, K. (2016). ”Unequal depression for equal work? How the wage gap explains gendered disparities in mood disorders.” Social Science & Medicine 149, 1-8.