RISK MANAGEMENT TRENDS Edited by Giancarlo Nota Risk Management Trends Edited by Giancarlo Nota Published by InTech Janeza Trdine 9, 51000 Rijeka, Croatia Copyright © 2011 InTech All chapters are Open Access articles distributed under the Creative Commons Non Commercial Share Alike Attribution 3.0 license, which permits to copy, distribute, transmit, and adapt the work in any medium, so long as the original work is properly cited. After this work has been published by InTech, authors have the right to republish it, in whole or part, in any publication of which they are the author, and to make other personal use of the work. Any republication, referencing or personal use of the work must explicitly identify the original source. Statements and opinions expressed in the chapters are these of the individual contributors and not necessarily those of the editors or publisher. No responsibility is accepted for the accuracy of information contained in the published articles. The publisher assumes no responsibility for any damage or injury to persons or property arising out of the use of any materials, instructions, methods or ideas contained in the book. Publishing Process Manager Ana Pantar Technical Editor Teodora Smiljanic Cover Designer Jan Hyrat Image Copyright 18percentgrey, 2010. Used under license from Shutterstock.com First published July, 2011 Printed in Croatia A free online edition of this book is available at www.intechopen.com Additional hard copies can be obtained from orders@intechweb.org Risk Management Trends, Edited by Giancarlo Nota, p. cm. ISBN 978-953-307-314-9 free online editions of InTech Books and Journals can be found at www.intechopen.com Contents Preface IX Chapter 1 Augmenting the Risk Management Process 1 Jan Emblemsvåg Chapter 2 Soft Computing-Based Risk Management - Fuzzy, Hierarchical Structured Decision-Making System 27 Márta Takács Chapter 3 Selection of the Desirable Project Roadmap Scheme, Using the Overall Project Risk (OPR) Concept 47 Hatefi Mohammad Ali, Vahabi Mohammad Mehdi and Sobhi Ghorban Ali Chapter 4 A New Non-Parametric Statistical Approach to Assess Risks Associated with Climate Change in Construction Projects Based on LOOCV Technique 65 S. Mohammad H. Mojtahedi and S. Meysam Mousavi Chapter 5 Towards Knowledge Based Risk Management Approach in Software Projects 89 Pasquale Ardimento, Nicola Boffoli, Danilo Caivano and Marta Cimitile Chapter 6 Portfolio Risk Management: Market Neutrality,Catastrophic Risk, and Fundamental Strength 109 N.C.P. Edirisinghe and X. Zhang Chapter 7 Currency Trading Using the Fractal Market Hypothesis 129 Jonathan Blackledge and Kieran Murphy VI Contents Chapter 8 Efficient Hedging as Risk-Management Methodology in Equity-Linked Life Insurance 149 Alexander Melnikov and Victoria Skornyakova Chapter 9 Organizing for Internal Security and Safety in Norway 167 Peter Lango, Per Lægreid and Lise H. Rykkja Chapter 10 System Building for Safe Medication 189 Hui-Po Wang, Jang-Feng Lian and Chun-Li Wang Chapter 11 Mental Fatigue Measurement Using EEG 203 Shyh-Yueh Cheng and Hong-Te Hsu Chapter 12 Risk Management in the Development of New Products in the Pharmaceutical Industry 229 Ewa J. Kleczyk Chapter 13 Risk Management Plan and Pharmacovigilance System - Biopharmaceuticals: Biosimilars 251 Begoña Calvo and Leyre Zúñiga Preface Although the etimology of the word risk is not certain, two possible sources are truly revealing: riscus and rizq. The mediaeval Latin word riscus signifies a reef or a rock sheer from the sea, evoking a sense of danger for the ships. The Arabic rizq can instead be interpreted as: all that comes from God, the bare essentials, from which an ad- vantage can be taken. These two different meanings reflect the essential aspects of risks. They express the danger of suffering a loss as a consequence of adverse events but they could also relate to the acquisition of some kind of gain. As a matter of fact, a given scientific field adopts its own definition of risk. The stand- ard ISO 31000:2009 applicable to any kind of organization, emphasizes the role of un- certainty: “risk is the effect of uncertainty on objectives”. According to ISO 31000 and other standards as well, risk management is necessary to achieve objectives, trying to keep away undesirable events but also trying to catch opportunities often related to risks. Business, social and natural phenomena evolve rapidly and in unforeseen ways today. Things change all the time and risk management requires new concepts and ideas to cope with the uncertainty that comes with the evolving world. Now, more than ever before, it is essential to understand the challenges posed by the new facets that risks can assume. At the same time, acquiring further knowledge on risk management methods can help us to control potential damage or to gain a competitive advantage in a quickly changing world. The book Risk Management Trends offers the results of researchers and practitioners on two wide areas of risk management: business and social phenomena. Chapters 1 and 2 are rather general and could be exploited in several contexts; the first chapter intro- duces a model where a traditional risk management process is augmented with infor- mation and knowledge management processes to improve model quality and useful- ness respectively. The second chapter discusses a soft computing based risk management. Chapters from 3 to 5 deal with project risks. This is a research area where advances are expected in the future. In chapter 3, the attention is on the strategic planning phase of a project when decision maker have to pick a roadmap among several alternatives. In X Preface chapter 4 the assessment of risks associated with climate change in construction pro- jects is approached through the non parametric leave-one-out-cross validation tech- nique. A framework made up of a conceptual architecture and a risk knowledge pack- age structure for collecting and sharing risk knowledge in software projects is presented in chapter 5. Chapters from 6 to 8 are devoted to the finance. Chapter 6 presents a methodology for risk management in equity portfolios from a long term and short term point of view. Chapter 7 shows an approach to currency trading using the fractal market hypothesis. Chapter 8 focuses on a risk-taking insurance company managing a balance between fi- nancial and insurance risks. Chapter 9 addresses the reorganization for internal security and safety in Norway. This is an emerging research field that has received impulse from the severe shocks such as 9/11 terror attack and the Japanese nuclear reactor hit by the tsunami that caused the evacuation of more than 180,000 people amid meltdown fears. The last four chapters aim at reporting advances in medicine and pharmaceutical re- search. In Chapter 10, the concept of Good Dispensing and Delivery Practice (GDDP) is proposed as a system building for risk management on medication. A method to evaluate mental fatigue induced during a visual display terminal task is introduced in chapter 11. Finally, risk management in the development of new products in the pharmaceutical industry and safety monitoring of similar biological products are dis- cussed in chapters 12 and 13 respectively. I hope that the reader will enjoy reading this book; new ideas on risk management in several fields and many case studies enrich the theoretical presentations making the discussion concrete and effective. I would like to thank all the contributors to this book for their research efforts. My ap- preciation also goes to the InTech team that supported me during the publication pro- cess. Giancarlo Nota Dipartimento di Informatica Università di Salerno, Italy [...]... as a hierarchy For example, all risks are divided into commercial risks, technological risks, financial risks, operational risks and so on These risk categories is then broken down into detailed risks For example, financial risks may consist of cash flow exposure risks, currency risks, interest risks and so forth It is important that the number of 14 Risk Management Trends children below a parent in... augmented risk management approach therefore incorporates Knowledge Management (KM) KM is believed to be pivotal to ensure an effective risk management process by providing context and learning possibilities In essence, risk management is not just about managing risks – the entire context surrounding the risks must be understood and managed effectively Neef (2005) states that Risk management is knowledge management ,... augmented risk management process are elaborated upon in the next section 4 The augmented risk management process The augmented risk management process is presented in Figure 5, and it is organized into five steps as indicated by a number, title and colour band (greyish or white) Furthermore, each step consists of three parallel processes; 1) the actual risk management process, 2) the 10 Risk Management Trends. .. however, in an interoperable environment is a difficult case 4 Whether the augmented risk management process would work for statistical risk management processes is also something for future work Intuitively, the augmented risk management process should work for statistical risk management processes because statistical risk management also has a human touch, as the discussion in Section 1 shows There are... run the risk of ignoring risks (and risk management) , or we fall victim to potential deception by risk management Nonetheless, there exists numerous risk management approaches, but all suffer from a major limitation: They cannot produce consistent decision support to the extent desired and subsequently they become less trustworthy As an example; three independent consulting companies performed a risk. .. capabilities are mingled which inhibits effective risk management Third, for any management tool to be useful it must be anchored in real world experiences and knowledge Neither the risk management process nor the information management process can provide such anchoring Consequently, it is proposed to link both the risk management and information management processes to a KM process so that knowledge... – risk management approach is presented Then, in Section 4, an improved approach – the augmented risk management approach – is presented Critical evaluation of the approach and future ideas are discussed in Section 5 A closure is provided in Section 6 A simple, functional case is provided along for illustrational purposes Augmenting the Risk Management Process 3 2 Introducing risk and uncertainty Risk. .. standard risk management process is reviewed 3 Brief review of risk management approaches All risk management approaches known to the author are variations of the framework presented in Figure 3 They may differ in wording, number of steps and content of steps, but the basic principles remain the same, see (Meyers 2006) for more examples and details The discussion here is therefore related to the risk management. .. specific and not generic 1 Personal experience as consultant in Det Norske Veritas (DNV) 8 Risk Management Trends Fig 3 Traditional risk management process Based on (Government Asset Management Committee 2001) The second step is the analysis of risks by identification, assessment, ranking and screening out minor risks This step is filled with shortcomings and potential pitfalls of the serious kind This... greatly Thus, a more reliable way of analysing risks must be found, which is discussed in Section 4 Nonetheless, there are four generic risk management strategies; 1) risk prevention (reduce probability), 2) impact mitigation (reduce impact), 3) transfer (risk to a third party such as an insurance company) or simply 4) accept (the risk) Depending on the chosen risk management strategy, specific action plans . Veritas (DNV). Risk Management Trends 8 Fig. 3. Traditional risk management process. Based on (Government Asset Management Committee 2001) The second step is the analysis of risks by identification,. risk management and financial instruments lead people astray, see for example (The Economist 2009). Thus, risk management can be a double-edged sword as we either run the risk of ignoring risks. run the risk of ignoring risks (and risk management) , or we fall victim to potential deception by risk management. Nonetheless, there exists numerous risk management approaches, but all suffer