by saschapohflepp

Risk Management:

Risk management is a discipline for dealing with the possibility that some future event will cause harm. It provides strategies, techniques, and an approach to recognizing and confronting any threat faced by an organization in fulfilling its Projects mission. Risk management may be as uncomplicated as asking and answering three basic questions:

What can go wrong?

What will we do (both to prevent the harm from occurring and in the aftermath of  an “incident”)?

Every project involves some degree of risk (“nothing ventured, nothing gained….”),  but that risk can be controlled with a bit of careful analysis, planning and communication.  As a project manager (or a manager dealing with projects), it is your job to anticipate project risks, and then to devise the means for controlling those risks before they  can get out of hand.  This is where the risk management process comes in…..

RISK MANAGEMENT DEFINED

Risk is all about the three questions:  1) What can happen?  2) What could result?  3) What can be done? Risk management is based on the need to anticipate and manage the elements of risk. If realized, risks can threaten the success of a project, both in terms of process and outcome. To effectively manage risk, threatening events and consequences should be probabilities, not merely possibilities.

Without a crystal ball, risk management can be a challenging process. But instead of just trying to see into the future, we can manage risk by looking at the past. By examining prior project, experiences you can get a better handle on risk probabilities. And if you can anticipate an event, you should be able to weigh the consequences, and control the outcome.

A Practical Process:

Although specifics may vary based on the nature and complexity of a project,  an effective risk management process will have three key components:

Risk Identification
Risk Analysis and Assessment
Risk Response and Control

You will note the repeated use of the word realistic.  This is to emphasize an important aspect of the risk analysis process… time spent analyzing risks that are possible, but improbable, will usually be an ineffective use of time and resources.  While it is possible that a meteor will strike the earth in the midst of any given project, it is not probable, and certainly not something that can be realistically anticipated.  This extreme example aside, it still can be said that to achieve the most effective analysis possible, it is best to keep identified risks realistic and probable.  Overall, the goal is to develop a list of probable risks, and thus lay the foundation for the assessment and ultimate response to those risks, whether you choose avoidance, mitigation or acceptance.

The starting point in the risk analysis process is to consider the nature and complexity of the project at hand.  Risk analysis will take time, and any steps taken to avoid or mitigate risk may negatively impact project schedules and budgets.  Therefore, you want to carefully consider the effort to be put into risk management.  A short term, non-production project, such as an internal review of purchasing procedures, would warrant limited risk analysis.  However, the physical deployment of new purchasing systems, with the potential for operational disruption, could call for further risk consideration.  In view of the operational impact, most technology projects deserve some degree of risk management.

Once you know that risk management is warranted, begin by identifying the types of probable risks. Depending upon the nature, complexity and duration of your project, you may encounter different types of risks.  To facilitate identification and assessment, and to pave the way for clarity in thought and communication,  group potential risks into categories.  This will allow you to view risks according to type, source and underlying cause…..

The end result of this risk identification process should be a listing of likely project risks, organized by appropriate category.  This list is your roadmap to the next step…..analyzing and assessing the impact of these risks, and then ultimately to forming an effective plan for response and control.

Controlling Project Risks

The risk management process begins with identification … to assess a project for potential risks that could threaten the project process itself, or the outcome. But identification is only the beginning.

Once probable risks are identified, they must then be assessed to determine the level of impact … will there be a negative impact, and how serious will it be? If the impact is serious, that raises another question …. is the negative impact so serious as to warrant further action?

This is a critical juncture in the risk management process. Every effort to control and mitigate risk has a price – in terms of time, money or resources. Before any action is taken to accept, avoid, or mitigate risk, these costs must be carefully considered.

Once you have identified and categorized probable risks to your project, you can turn to the assessment phase of the risk management process.

The goal of the risk assessment phase is twofold:

To determine the likely impact of probable risk.
To evaluate that impact in order to determine the need for further action.

5

Determine the Impact:

Identifying Project Risks

Now is the time to take out that crystal ball. In order to properly manage any threats to project success, you must first anticipate and predict the likely impact of probable risk. There is no magic formula for this prediction, just knowledge, common sense and experience.

The starting point for this type of risk assessment is predicated upon the existence and quality of project scope and goals. If you have clearly identified your project goals and priorities, then you will be able to use that knowledge to assess the impact and consequences of any probable project risks. For example, if you view probable risk and likely impact in context of overall project priorities, you will be in a better position to evaluate the need for targeted action.

To that end, with your identified risks in hand, you will now need to consider the following types of questions…..

Can this risk affect the quality of my product or project end-result?
Can this risk affect project budgets and costs?
Can this risk affect the project schedule?
Can this risk affect the project planning and management process?
Can this risk affect the stability of project work environment?

For each “yes”, you can then proceed to the next series of questions ….

Does this risk pose a sufficient threat to my project so that further action is warranted?

THE ANSWER = NO

If the answer is “no”, then the results of that analysis should be properly documented, thus declaring that no further action is warranted. Remember that the goal of risk management is not just to avoid risk, but to also apply logic and reality to any decisions and strategies for dealing with risk. If, at this point, you can acknowledge risks, and logically decide to take no further action, your goals in risk management will be realized.

THE ANSWER = YES

However, if the answer is once again “yes”, thus acknowledging the need for further action, then continued assessment should proceed.

Once you acknowledge the possibility of impact, and the need for further action, you will then need to look at the issue of consequences. For example, you may know that a delay in network card delivery could impact a desktop installation project, but how will that delay affect the overall project …. will that one delay affect the entire schedule, or can other parallel activities help to make up for that lost time? The answers to these types of questions will help you to pinpoint the likely consequences of a given risk.

TAKE ACTION …

With this information in hand, you can then evaluate the need for mitigation and control.

If something happens, how will we pay for it? Simply speaking, a risk is any uncertainty about a future event that threatens your organization’s ability to accomplish its mission. Although your “fund balance” may be small, and equipment may be second generation, your nonprofit has vital assets at risk. Nonprofit assets fall into the following categories.

People — board members, volunteers, employees, clients, donors, and the public. Property — buildings, facilities, equipment, materials, copyrights, and trademarks. Income — sales, grants, and contributions.

Goodwill — reputation, stature in the community, and the ability to raise funds and appeal to prospective volunteers.

Consistent risk management is one of the keys to the success of a project and must always be applied at the right time in the course of all project phases, from the tendering right through to project conclusion. The Risk Management process defined sample formats as per the write up enclosed below and normally organizations needs to be adhered strictly to their risk mitigation processes, base upon their policies.

Organization Risk Process Sample Format:

Risk Management Process in GAUTAM KOPPALA ORG India

The Risk Management process has been introduced in GAUTAM KOPPALA ORG since December 2000.

GAUTAM KOPPALA ORG became a full fledged business group within GG Inc. effective 23.02.2004 and has since then imbibed this philosophy gradually.

Today’s business environment is subjected to stiff competition, globalization of markets,  complex technologies, projects having a faster cycle time coupled with tricky contractual conditions. As an outcome of these factors there is an exposure to a large number of risks that arise in the ordinary course of business.

The current profile of GAUTAM KOPPALA ORG business is approx 75% solution business and the balance being the product business. The solution business typically revolves around supply of a spectrum of standard products from the various GG Inc.  factories, and customizing  / integrating the standard software around the hardware supplied so as to offer a complete solution to the customer.

The business is heavily dependent on imports from GG Inc., with absence of local manufacturing, local value addition is in the form of panels, cables, conduits and installation services and project management. There are no “tailor made” goods or made to order products, therefore the risk profile of the business to that extent is lower.

With this background, the risk management process within GAUTAM KOPPALA ORG has been structured accordingly to review and manage:

Technical Risks

Commercial/Contractual risks

Operational risks like currency fluctuation, liquidated damages etc

Risk Management process in GAUTAM KOPPALA ORG does not aim at removing all risks in totality but is an enabler towards risk identification and managing of these risks in an efficient manner. On the other hand it also allows us to focus on the opportunities available and there by ensuring financial compliance and minimising risk impact on the Business group operations.

The Risk Management Process within GAUTAM KOPPALA ORG is followed in the manner mentioned below :

The activity is centrally controlled from Head office through the Organisational Risk Management divisional co-ordinator.
The Strategic Risks / Financial risks are centrally identified and controlled at the Divisional Management level
The Risk identification of operational risks is done through the bi-monthly regional reviews and analysis of the Projects on POC basis and other regional financial statements.
The Complete risks at the Divisional level are compiled and circulated to the regions for conformance and completeness
Based on this report the Top 5 risks are reviewed and reported in the quarter ending process to GG Inc. Management

Managing Director                                                   Risk Controller

Ideal risk management:

A prioritization process is followed whereby the risks with the greatest loss and the greatest of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order. In practice the process can be very difficult, and balancing between risks with a high probability of occurrence but lower loss versus a risk with high loss but lower probability of occurrence can often be mishandled.

Types of Risks:

Intangible risk management identifies a new type of  risk - a risk that has a 100% probability of occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient knowledge is applied to a situation, a knowledge risk materializes. Intangible risk management allows risk management to create immediate value from the identification and reduction of risks that reduce productivity.

Relationship risk appears when ineffective collaboration occurs.

Process-engagement risk may be an issue when ineffective operational procedures are applied. These risks directly reduce the productivity of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation, brand value, and earnings quality.

Financial risk management is the practice of creating economic value in a firm particularly credit and market risk

Management Risks: Risks that relate to the scope, structure and strategy of a given project.

Some examples……

The scope and complexity of the project is too large…i.e. are you biting off more than can be chewed?
Project requirements and outcomes are poorly defined.
The project does not have effective sponsorship or management support.

Technology Risks: Specific technical risks including design omissions, version conflicts, operational failures, incompatibilities or bugs.

Some examples……

Potential incompatibilities exist within current desktop platforms or internally customized applications.
Outdated or insufficient hardware exists for running new software products.
Early adopter’s risk – early adoption of new technology will limit the ability to benefit from the experiences of others.

Resource Risks: Human resource risks can involve staff changes, a lack of skilled resources,  staff non-performance,  or the reliability and availability of external service providers.

Some examples…..

Continual resource availability may be compromised during lengthy projects.
The loss of key staff  to competitors or vendors may occur once they are trained in new products or technologies.

Timing Risks: Timing and scheduling risks can include product delivery delays, or missed deadlines along the critical path.

Some examples……

Annual budgets will lapse if product delivery is delayed.
An overly aggressive project schedule may limit the execution of thorough test plans.

Political Risks: Internal sensitivities relating to project support, sponsorship, internal cooperation and communications.

Some examples……

Is the project dependent upon one individual for visibility and support – and what would happen if that person leaves the company?
Are project deliverables in alignment with stated company priorities?
Are there any political issues that could negatively impact resource availability and cooperation?
Are there other competing projects within the company?
Could pending organizational changes impact the project?

External Risks: Risks beyond the direct control of the project team, caused by external environmental or industry factors.

Some examples……

Potential regulatory changes
Potential economic changes
Potential company mergers
Seasonal issues, including conflicts with holidays or weather related issues

Risk management is a structured approach to managing uncertainty through, risk assessment developing  strategies to manage it, and mitigation of risk using managerial resources.

The strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.

Steps in the risk management process:

Establish the context

Establishing the context involves

Identification of risk in a selected domain of interest

Planning the remainder of the process.

Mapping out the following:

the social scope of risk management

the identity and objectives of stakeholders

the basis upon which risks will be evaluated, constraints.

Defining a framework for the activity and an agenda for identification.

Developing an analysis of risks involved in the process.

Mitigation of risks using available technological, human and organizational resources.

Identification

After establishing the context, the next step in the process of managing risk is to identify potential risks. Risks are about events that, when triggered, cause problems. Hence, risk identification can start with the source of problems, or with the problem itself.

Source analysis Risk sources may be internal or external to the system that is the target of risk management. Examples of risk sources are: stakeholders of a project, employees of a company or the weather over an airport.

Problem analysis Risks are related to identified threats. For example: the threat of losing money, the threat of abuse of privacy information or the threat of accidents and casualties. The threats may exist with various entities, most important with shareholders, customers and legislative bodies such as the government.

When either source or problem is known, the events that a source may trigger or the events that can lead to a problem can be investigated. For example: stakeholders withdrawing during a project may endanger funding of the project; privacy information may be stolen by employees even within a closed network; lightning striking a Boeing 747 during takeoff may make all people onboard immediate casualties.

The chosen method of identifying risks may depend on culture, industry practice and compliance. The identification methods are formed by templates or the development of templates for identifying source, problem or event. Common risk identification methods are:

Taxonomy-based risk identification The taxonomy in taxonomy-based risk identification is a breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices, a questionnaire is compiled.

Common-risk Checking In several industries lists with known risks are available. Each risk in the list can be checked for application to a particular situation. An example of known risks in the software industry is the Common Vulnerability and Exposures list found at

Risk Charting This method combines the above approaches by listing Resources at risk, Threats to those resources Modifying Factors which may increase or reduce the risk and Consequences it is wished to avoid. Creating  under these headings enables a variety of approaches. One can begin with resources and consider the threats they are exposed to and the consequences of each. Alternatively one can start with the threats and examine which resources they would affect, or one can begin with the consequences and determine which combination of threats and resources would be involved to bring them about.

Assessment

Once risks have been identified, they must then be assessed as to their potential severity of loss and to the probability of occurrence. These quantities can be either simple to measure, in the case of the value of a lost building, or impossible to know for sure in the case of the probability of an unlikely event occurring. Therefore, in the assessment process it is critical to make the best educated guesses possible in order to properly prioritize the implementation.

Furthermore, evaluating the severity of the consequences (impact) is often quite difficult for immaterial assets. Asset valuation is another question that needs to be addressed. Thus, best educated opinions and available statistics are the primary sources of information. Nevertheless, risk assessment should produce such information for the management of the organization that the primary risks are easy to understand and that the risk management decisions may be prioritized. Thus, there have been several theories and attempts to quantify risks. Numerous different risk formulae exist, but perhaps the most widely accepted formula :

Rate of occurrence multiplied by the impact of the event equals risk

Later research has shown that the financial benefits of risk management are less dependent on the formula used but are more dependent on the frequency

In Project it is imperative to be able to present the findings of risk assessments in financial terms. Robert Courtney Jr. (IBM, 1970) proposed a formula for presenting risks in financial terms.

Potential risk treatments:

Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories: (Dorfman, 1997)

Avoidance (aka elimination)

Reduction (aka mitigation)

Retention

Transfer (aka buying insurance)

Ideal use of these strategies may not be possible. Some of them may involve trade-offs that are not acceptable to the organization or person making the risk management decisions.

POME Prescribe:

About Work / Life Balance:

Naps, Breaks and Vacations: The rejuvenation trio

ü  Take a break: When you feel overwhelmed, take a break; get your mind off work for some time. Chances are, you will be able to handle the situation better after a break.

ü   Get enough sleep: There is no substitute for sleep. All else being equal, a well-rested person is better equipped to meet the challenges that the day presents, as compared to a person who has not had enough rest.

ü  When you plan a vacation and want to really enjoy it, ensure that all the work-oriented nitty gritty is taken care of, and out of the way.

ü  Manage your vacation as a project (a lot of planning) if you enjoy doing a lot of things rather than just lying around idly all day (which is also an excellent way to recharge your batteries, by the way).

Gautam Koppala,

POME Author

by USDAgov

the last cult of England

Image by francistoms
Staff of Programmes Ltd, London, England. Dateline: mid-1980′s

Programmes Ltd. was the UK’s sales sensation of its time. These people could sell anyone practically anything, legal or not: they worked insanely hard and made their company the industry leader in about two years. No wonder they quickly won Britain’s top phone marketing award.

Never mind marketing – this is about a phenomenal group of people whose story has never been told. If a history of cults in modern Britain were to be written, these people would be in it. Fact: all or almost all the staff seen here are graduates of the controversial – some would say notorious – Exegesis Seminar. Without Exegesis, Programmes would never have existed. It was these men and women who launched Programmes in Bristol and later London. They quickly proceeded to redefine telephone marketing in the UK. The year was 1981.
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Founded, inspired and controlled by the charismatic Robert Daubigny, a master trainer, Exegesis copied the style and content of Werner Erhard’s est training – and pushed further. Exegesis seminars were much smaller, more intense and confrontational than est trainings. Once the seminar commenced its four long days in a hotel room, you quickly realised the trainer was not like anyone you had ever met. He, or she, was ruthless. It was as if your game was up. You could not hide. Nothing had prepared me for it.

Was it disturbing? Absolutely. Was it abusive? It took risks to get you to risk. Did it go ‘too far’? I never witnessed that. The British media were extremely prejudiced about Exegesis and slammed it as a scam and worse, but I cheerfully disagree.

A man needs a little madness or else he never dares to cut the rope and be free.
—Nikos Kazantzakis

If anything, I thought Exegesis did not go far enough; still, of what use would the most brilliant training be if it bothered the authorities so much that they banned it?

Active in England and Wales from the late-70s to the mid-80s, with headquarters in Bristol and London, whoever was lucky or doomed enough to do the Exegesis Seminar, and had the nerve to endure it all either went through hell and came out transformed, as we used to say, or merely wasted time, money and the opportunity of a lifetime – and didn’t. By all normal standards it was a dangerous, foolish thing to do.

www.bbc.co.uk/bbcfour/documentaries/features/gurus.shtml

Given its damn-the-torpedoes brand of experiential education, toxic media reportage and notoriety were all but guaranteed. In fact, Exegesis got such bad press as to prompt hostile questions in the UK Parliament. Thus, from Hansard:
hansard.millbanksystems.com/commons/1984/may/14/mr-ashley…

Full disclosure: I never worked for Programmes. I took part actively in Exegesis. Did I like it? No. I loved it. I hated it. I was fascinated by it, and disgusted as well. I wanted to get out, I wanted to stay in. It was as if we were being cooked in a cauldron of ever increasing commitment to be fully here now. My time in Exegesis was priceless, unforgettable. It invited me to experience passion, excellence, total commitment, trauma, grace, and enlightenment. If you could stand it, Exegesis was the shock treatment of your life (that barf bag under every chair in the seminar? It wasn’t a prop). Every moment was wake-up time: take full responsibility – no excuses! now! now! now! Committed exegesis graduates were like warriors without a war – or rather the war Robert had us fighting was no less than the age-old spiritual war against our own copping out, against apathy, against the fear-driven betrayal of life, truth and of love.

Your greatest gift lies beyond the door named ‘fear.’
—Sufi aphorism

Well, that was what fired me up. Other graduates responded differently. For many, the power they discovered in the seminar was promptly deployed in business; in this, Exegesis’ series of communication, and other-themed, seminars were very successful. The applications for sales were obvious, and in Programmes they were put to full use.

Reality check: if exegesis sounds implausibly gruelling, idealistic and too good to be true, well, it was. Personal integrity was hammered into us at seminars; yet, outside, the Exegesis ethic was to go for results by whatever, uh, worked. Morality was irrelevant: ends justified the means. Even healthy and creative criticism was angrily rejected: unquestioning trust in Robert’s directives and appointees trumped all other considerations. Dysfunctionality shadowed enlightenment in a weird duet. Largely as a result, project after project was launched with high hopes only to go nowhere.

Away from the seminar (only, there was no ‘away’ from the seminar) there was no escape from the in-your-face demands by staff for more effort, more commitment and most of all, more registrations. We grunts, called gaspers (graduate assistance seminar programme: a committed corps of unpaid employees) were not allowed to forget that Job One was to get people, thousands, millions of people, the whole freaking world! to do the Exegesis Seminar.

"Hello, I want to offer you this unique opportunity to be humiliated, taken apart and turned inside-out in front of strangers. This is your once in a lifetime chance to totally transform your life and get enlightened."

I mean, come on. You had to be crazy, right? We were!

Yes, I took part in the drive, in 1981, to swing an election in a heavily Labour constituency of London to our very own candidate, a respectable lawyer. Unknown to the public, not to mention the dear old oblivious Liberal Party, she was in fact an exegesis staffmember taking orders from Robert. In the weeks before election day, busloads of well-dressed graduates from Bristol joined London graduates in canvassing the entire borough, door to door, clipboards in hand, spiels memorised, getting the answers we wanted.

Using my deafness as an excuse I had at first not wanted to do it, then changed my mind. It turned out beautifully, blowing away yet another old limiting belief: "I can’t do canvassing because I’m deaf". Going door to door meeting all kinds of people (years later I recall how kind they were to give me their time) and asking for their vote, and often getting it, was when I first truly realised my being deaf is, paradoxically, a gift, even an exquisite joke, opening me to total listening, without prejudice, a listening that transcends communication and opens to – whoa! – communion. Nothing else but total listening was – is – the answer to the koan of my deafness. How perfect it was. My world was rocked! Could I have learned this by following social norms and having a conventional education? Hardly.

“The deepest level of communication is not communication, but communion. It is wordless. It is beyond words, and it is beyond speech, and it is beyond concept.” —Thomas Merton

How grateful I am that Exegesis was almost nothing like Aum Shinrikyo, or Heaven’s Gate, or People’s Temple, of "drinking the Kool Aid" infamy.

Being unreasonable, risking yourself and doing the impossible was the Exegesis way. That was what I got from my encounter with Robert Daubigny and his students.

Incidentally, in that election the Liberal Party, the Labour Party and even MI5 never knew who we were until the votes were in and it was too late. Exegesis’ candidate came second, almost winning the seat against all the odds.

Ah, memories. Yes, I witnessed the rise and fall of Microlite Engineering Ltd. (made hang-glider-like planes from imported kits), an Exegesis front company in the heart of Bristol’s old industrial district. All the the employees were exegesis graduates, including – fatally – its management. Its too-trusting graduate founder was soon financially ruined… Yes, I was in at the beginning of the powerplays called the Bristol Project (aim: to recruit key people in the city, and grow Robert’s influence there) and the Glastonbury University project (aim: a university teaching enlightenment or whatever else Robert wanted)

Dodgiest of all (or perhaps not) was the ‘Money Seminar’ (Bristol, 1981) in which Robert raked in serious cash from us suckers running a one-game casino, week after week… until we wised up and clammed up. How it worked: every graduate in the room wrote down their high bid in secret and handed it in to a staffperson. The highest bidder won half the total pool. To this day I remember the awful look on the face of neophyte graduate D_ R_ as he learned that he had won that night’s bout with his huge wager – and that after the organisation had skimmed off its hefty cut he’d actually get back about half his stake. We all clapped enthusiastically for the winning loser.
While not as unfortunate as my hapless culltmate I too was taken for a tidy sum before catching on. Ouch!

The wackiest Exegesis project of them all? No contest: the Total Transformation of Society – yes, this includes you, dear reader – in 4 years. Or was it two? Launched at a much-heralded gathering of all exegesis graduates, led by Robert in a city-owned hall at the foot of Park Street, Bristol in 1981, it was to begin with us ‘transforming’ the city, and go viral from there. If I recall aright, Robert declared the project a success after two years.
Or was it one? Whatever.

Anyway, every Exegesis project more or less failed, with the glittering exception of Programmes. It made Robert Daubigny extremely wealthy.

In 1986 Exegesis ceased operations, having transformed itself into what soon became Britain’s the top telephone marketing firm: Programmes.

The people I trained with in Exegesis still have a place in my heart – you never forget your first time! I wanted more, and became something of a glutton for cults in the 1980s. Pursuing my passion for enlightenment, I went to a zen monastery in California, then on to Esalen Institute, and after took the est training and its various graduate seminars. At the last est training and the first Forum in San Francisco, I assisted Werner Erhard. Curious about Werner and est? See:
www.youtube.com/watch?v=mMeXmFVq6cY
and
www.erhardseminarstraining.com/

At the same time, I volunteered at The Breakthrough Foundation (basically an est offshoot, as also the Hunger Project, and the simply transcendent Holiday Project)… and as my decade of crunchy, culty goodness came to a close, Ron Kennedy’s ‘Man Woman Training’. The last of these I took, in Russia, afforded us western participants the eerie realisation that we were doing a seminar peppered with KGB agents (Moscow, then-USSR, 1989).

No, they did not exactly get into the groove.

Risk in the stock market is everywhere. Investing in the stock market is fraught with worry, for good reason. If you lose half of your investment, you must double your return to just breakeven. Warren Buffett, considered by many to be the world’s greatest investor, states his first rule of investing is “do not lose money.” Unfortunately, the risk in the stock market of losing your money is always a possibility. However, without taking some risk there is no reward. Therefore, successful investors employ stock market risk management strategies to minimize their losses. Managing risk in stock market starts with identifying the type of risk and taking action to mitigate the impact of the risk on your investment portfolio.

Risk in the stock market comes in many forms and each can lead to a loss. The most common is the overall trend of the market. Approximately 60 % of the move of an individual stock is attributed to the trend of the stock market. If the stock market is rising, it takes with it most of the other stocks, though not in equal amounts. When the stock market falls stocks sink with it.

Another big risk in stock market lies with owning an individual stock. While owning the stock of a company can offer greater rewards, it also entails the risk that something might go wrong that can cut the price of the company’s shares in half. It might be news that sales have suddenly fallen due to a new competitor, or a product liability issue has arisen. For whatever the reason, individual stocks are subject to risk associated to them alone.

While there are other risks in the stock market, these encompass the vast majority of the ones you will encounter. Fortunately, investors can employ several strategies as a part of their stock market risk management program.

First, they can invest with the trend of the market. Following the trend is a proven method, though it is not as easy as it sounds. Trend following tries to identify and then align with the underlying trend of the market. The assumption is the market will be in a trend that could last a day, a week, a month a year or multiple years. Generally, short-term trends cycle within longer term trends. Depending on your time frame, you can align your stock position with the trend once you have identified it. When you follow the trend, you are able to reduce the likelihood your stock will fall when the market trend is rising.

Another proven risk management strategy for owning stocks is to diversify your portfolio across several different companies, sectors, and asset classes. By owning several different stocks, you reduce the impact of a loss in any one company. Moreover, if the stocks you own are from several different industry sectors you mitigate the impact of any one sector have causing a loss. Exchange Traded Funds (ETFs) offer an excellent way to add diversity to your portfolio as they hold shares of companies based on an index. The index can be for the whole market, or any segment of the market. When using ETFs, be sure there is sufficient liquidity (plenty of shares trading) or you will create another unwanted risk.

Many investors size their stock position based on their tolerance for risk. Dr. Van K. Tharp performed an experiment on position sizing in his book Trade Your Way to Financial Freedom . As Dr, Tharp found adjusting the size of your stock position using percent risk or volatility greatly increases your returns. By adjusting the size of your position based on the risk you are willing to assume, you lower your potential of a loss and increase your probability of solid gains. Our article on Position Sizing provides further detail on this method to manage stock ownership risk.

Should the price of your stock turn down, wouldn’t it be nice if you could exit your position before the price fell further. Stop loss or trailing stops are tools used by many investors to close their position should the price fall by a specified amount. Most brokerage firms allow the use of stops using a set number of points below the price or a percent below the price. Trailing stops follow the price up by an amount you set and then hold that price level on any turn down. The idea of this stock market risk management technique is to leave enough room for the stock price to fluctuate within its up trend, but be ready to sell should it fall below a pre-determined level. Some investors use mental stops, which work well as long as they have the self-discipline to sell when their stop price is hit.

Many people believe equity options are risky investments. It is true that options can be risky as they increase your use of leverage. However, professional investors use certain options to reduce the risk of their portfolios. Covered call options are an excellent way to create some down side protection while increasing the potential return of your portfolio. Covered calls are suitable for IRA accounts, indicating that the authorities consider them a low risk investment strategy. Protective put options are another method to lower risk of a portfolio. Similar to insurance, protective puts provide security should your long positions suddenly fall in price. When that happens the put option guarantees you will receive the agreed upon price for your stock no matter how far it falls. You can learn more by reading articles on covered calls and protective puts that describe the features and benefits of these stock market risk management strategies.

Managing risk in stock market is a matter of doing all you can to avoid losing money. Fortunately, there are several strategies to help you to achieve this important goal. The most successful investors employ all of stock market risk management strategies that recognize how important it is to avoid making a mistake while investing in the stock market. Do your portfolio a favor and use the available stock market risk management techniques to your advantage.

www.guerillastocktrading.com This may just be the most important stock market tutorial video you will ever watch. Most stock traders focus on buying a stock, and how much money they will make on the upside if the stock goes up x%. In this video, Lance explains why this is the opposite approach you should be taking. Understanding the difference between the mindset of amateur stock traders and professional stock traders will give you an edge over the competition.

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