RISK MANAGEMENT PDF

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expected returns subject to the risks involved and risk tolerance. Agricultural The first step in the process of managing risk is identifying and classifying. PDF | This chapter explains the objective of risk management and describes the framework in which financing decisions including insurance are taken and. Risk management is core to the current syllabus for P3 management accounting .. raukhamatfrogal.ga


Risk Management Pdf

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Programme as: “Survey of existing Risk Management and Risk 1. low awareness of Risk Management activities within public and. in risk management in the manual entitled Regulations on Risk for risk management: 1) Set forth SMFG's Groupwide basic policies for risk. Risk Management. Introduction to. Risk Management. (Theory & Practice). DCU Risk & Compliance Officer. November

Managing strategy risks and external risks requires very different approaches. We start by examining how to identify and mitigate strategy risks. Which model is appropriate for a given firm depends largely on the context in which an organization operates. Each approach requires quite different structures and roles for a risk-management function, but all three encourage employees to challenge existing assumptions and debate risk information.

Independent experts. Some organizations—particularly those like JPL that push the envelope of technological innovation—face high intrinsic risk as they pursue long, complex, and expensive product-development projects. But since much of the risk arises from coping with known laws of nature, the risk changes slowly over time.

For these organizations, risk management can be handled at the project level. The experts ensure that evaluations of risk take place periodically throughout the product-development cycle.

Because the risks are relatively unchanging, the review board needs to meet only once or twice a year, with the project leader and the head of the review board meeting quarterly. The meetings, both constructive and confrontational, are not intended to inhibit the project team from pursuing highly ambitious missions and designs.

But they force engineers to think in advance about how they will describe and defend their design decisions and whether they have sufficiently considered likely failures and defects. At JPL, the risk review board not only promotes vigorous debate about project risks but also has authority over budgets.

The board establishes cost and time reserves to be set aside for each project component according to its degree of innovativeness.

Risk Management Online Course

The reserves ensure that when problems inevitably arise, the project team has access to the money and time needed to resolve them without jeopardizing the launch date. JPL takes the estimates seriously; projects have been deferred or canceled if funds were insufficient to cover recommended reserves. Risk management is painful—not a natural act for humans to perform.

Many organizations, such as traditional energy and water utilities, operate in stable technological and market environments, with relatively predictable customer demand.

In these situations risks stem largely from seemingly unrelated operational choices across a complex organization that accumulate gradually and can remain hidden for a long time. Since no single staff group has the knowledge to perform operational-level risk management across diverse functions, firms may deploy a relatively small central risk-management group that collects information from operating managers.

We observed this model in action at Hydro One, the Canadian electricity company.

Employees use an anonymous voting technology to rate each risk, on a scale of 1 to 5, in terms of its impact, the likelihood of occurrence, and the strength of existing controls. The rankings are discussed in the workshops, and employees are empowered to voice and debate their risk perceptions. Hydro One strengthens accountability by linking capital allocation and budgeting decisions to identified risks. The corporate-level capital-planning process allocates hundreds of millions of dollars, principally to projects that reduce risk effectively and efficiently.

At the annual capital allocation meeting, line managers have to defend their proposals in front of their peers and top executives. Managers want their projects to attract funding in the risk-based capital planning process, so they learn to overcome their bias to hide or minimize the risks in their areas of accountability. Embedded experts. The financial services industry poses a unique challenge because of the volatile dynamics of asset markets and the potential impact of decisions made by decentralized traders and investment managers.

JP Morgan Private Bank adopted this model in , at the onset of the global financial crisis. Risk managers, embedded within the line organization, report to both line executives and a centralized, independent risk-management function. Risk managers assess how proposed trades affect the risk of the entire investment portfolio, not only under normal circumstances but also under times of extreme stress, when the correlations of returns across different asset classes escalate.

Avoiding the Function Trap Even if managers have a system that promotes rich discussions about risk, a second cognitive-behavioral trap awaits them. Because many strategy risks and some external risks are quite predictable—even familiar—companies tend to label and compartmentalize them, especially along business function lines. Preventable risks, arising from within an organization, are monitored and controlled through rules, values, and standard compliance tools.

In contrast, strategy risks and external risks require distinct processes that encourage managers to openly discuss risks and find cost-effective ways to reduce the likelihood of risk events or mitigate their consequences. Such organizational silos disperse both information and responsibility for effective risk management. They inhibit discussion of how different risks interact. Good risk discussions must be not only confrontational but also integrative.

Businesses can be derailed by a combination of small events that reinforce one another in unanticipated ways. Managers can develop a companywide risk perspective by anchoring their discussions in strategic planning, the one integrative process that most well-run companies already have. For example, Infosys, the Indian IT services company, generates risk discussions from the Balanced Scorecard, its management tool for strategy measurement and communication. In looking at the goal and the performance metrics together, management realized that its strategy had introduced a new risk factor: client default.

Infosys began to monitor the credit default swap rate of every large client as a leading indicator of the likelihood of default.

To take another example, consider Volkswagen do Brasil subsequently abbreviated as VW , the Brazilian subsidiary of the German carmaker.

For each objective on the map, the group identifies the risk events that could cause VW to fall short of that objective. The team then generates a Risk Event Card for each risk on the map, listing the practical effects of the event on operations, the probability of occurrence, leading indicators, and potential actions for mitigation.

It also identifies who has primary accountability for managing the risk. Managers can see at a glance how many of the identified risks for each objective are critical and require attention or mitigation. Managers can also monitor progress on risk management across the company. Beyond introducing a systematic process for identifying and mitigating strategy risks, companies also need a risk oversight structure. Infosys uses a dual structure: a central risk team that identifies general strategy risks and establishes central policy, and specialized functional teams that design and monitor policies and controls in consultation with local business teams.

The decentralized teams have the authority and expertise to help the business lines respond to threats and changes in their risk profiles, escalating only the exceptions to the central risk team for review.

For example, if a client relationship manager wants to give a longer credit period to a company whose credit risk parameters are high, the functional risk manager can send the case to the central team for review. These examples show that the size and scope of the risk function are not dictated by the size of the organization. Hydro One, a large company, has a relatively small risk group to generate risk awareness and communication throughout the firm and to advise the executive team on risk-based resource allocations.

By contrast, relatively small companies or units, such as JPL or JP Morgan Private Bank, need multiple project-level review boards or teams of embedded risk managers to apply domain expertise to assess the risk of business decisions. IT risk is a risk related to information technology.

This is a relatively new term due to an increasing awareness that information security is simply one facet of a multitude of risks that are relevant to IT and the real world processes it supports.

It lags only long enough for incentives like black markets to evolve and new exploits to be discovered. There is no end in sight for the advancement of technology, so we can expect the same from cybersecurity. Duty of Care Risk Analysis DoCRA [37] evaluates risks and their safeguards and considers the interests of all parties potentially affected by those risks. For the offshore oil and gas industry, operational risk management is regulated by the safety case regime in many countries. Hazard identification and risk assessment tools and techniques are described in the international standard ISO Further, diagrammatic representations of hazardous events are often expected by governmental regulators as part of risk management in safety case submissions; these are known as bow-tie diagrams see Network theory in risk assessment.

The technique is also used by organisations and regulators in mining, aviation, health, defence, industrial and finance. The principles and tools for quality risk management are increasingly being applied to different aspects of pharmaceutical quality systems. Risk management is also applied to the assessment of microbiological contamination in relation to pharmaceutical products and cleanroom manufacturing environments. Risk communication is a complex cross-disciplinary academic field related to core values of the targeted audiences.

A main goal of risk communication is to improve collective and individual decision making. Risk communication is somewhat related to crisis communication.

Risk Management

Some experts coincide that risk is not only enrooted in the communication process but also it cannot be dissociated from the use of language. Though each culture develops its own fears and risks, these construes apply only by the hosting culture.

From Wikipedia, the free encyclopedia. Set of measures for the systematic identification, analysis, assessment, monitoring and control of risks. For other uses, see risk disambiguation. For business risks, see risk analysis business. For the magazine, see Risk Management magazine. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: Management accounting Financial accounting Financial audit.

Business entities. Cooperative Corporation Limited liability company Partnership Sole proprietorship State-owned enterprise. Corporate governance. Annual general meeting Board of directors Supervisory board Advisory board Audit committee. Corporate law. Commercial law Constitutional documents Contract Corporate crime Corporate liability Insolvency law International trade law Mergers and acquisitions. Commodity Public economics Labour economics Development economics International economics Mixed economy Planned economy Econometrics Environmental economics Open economy Market economy Knowledge economy Microeconomics Macroeconomics Economic development Economic statistics.

Marketing Marketing research Public relations Sales. Types of management. Business analysis Business ethics Business plan Business judgment rule Consumer behaviour Business operations International business Business model International trade Business process Business statistics.

Main article: Risk assessment. Risk management plan. Enterprise Risk Management. This article uses abbreviations that may be confusing or ambiguous. There might be a discussion about this on the talk page.

Please improve this article if you can. September Learn how and when to remove this template message. IT risk management. The Failure of Risk Management: Risk management — Vocabulary. International Organization for Standardization.

Risk management — Principles and guidelines on implementation. Harvard Business Review. Archived from the original PDF on Comunidad de Madrid. Retrieved on An Introduction to Risk Management 2 ed. Cambridge, UK: Retrieved 23 Feb Introduction to Risk Management and Insurance 9 ed. Englewood Cliffs, N. Prentice Hall. Business Trends Quarterly. Project Decisions: The Art and Science.

Management Concepts. Gower Pub Co. Vienna, VA. What Is Risk Management? Megaprojects and Risk: An Anatomy of Ambition. Cambridge University Press. Constructing a Successful Business Continuity Plan. Business Insurance Magazine , March 9, Acceptable Risk Processes: Lifelines and Natural Hazards.

Reston, VA: Archived from the original on Retrieved Ice Tools" PDF. EN A Business Solution.

Threat Sketch. Business Horizons. CS1 maint: Multiple names: Extra text: A Guide for Emergency Managers and Communicators. Department of Homeland Security May Systems engineering. Aerospace engineering Biological systems engineering Configuration management Earth systems engineering and management Electrical engineering Enterprise systems engineering Performance engineering Reliability engineering Safety engineering. A strategy with high expected returns generally requires the company to take on significant risks, and managing those risks is a key driver in capturing the potential gains.

BP accepted the high risks of drilling several miles below the surface of the Gulf of Mexico because of the high value of the oil and gas it hoped to extract.

Strategy risks cannot be managed through a rules-based control model. Such a system would not stop companies from undertaking risky ventures; to the contrary, it would enable companies to take on higher-risk, higher-reward ventures than could competitors with less effective risk management.

Managing Risks: A New Framework

Category III: External risks. Some risks arise from events outside the company and are beyond its influence or control. External risks require yet another approach. Because companies cannot prevent such events from occurring, their management must focus on identification they tend to be obvious in hindsight and mitigation of their impact.

Companies should tailor their risk-management processes to these different categories. While a compliance-based approach is effective for managing preventable risks, it is wholly inadequate for strategy risks or external risks, which require a fundamentally different approach based on open and explicit risk discussions.

Why Risk Is Hard to Talk About Multiple studies have found that people overestimate their ability to influence events that, in fact, are heavily determined by chance. We tend to be overconfident about the accuracy of our forecasts and risk assessments and far too narrow in our assessment of the range of outcomes that may occur.

We also anchor our estimates to readily available evidence despite the known danger of making linear extrapolations from recent history to a highly uncertain and variable future. We often compound this problem with a confirmation bias, which drives us to favor information that supports our positions typically successes and suppress information that contradicts them typically failures. When events depart from our expectations, we tend to escalate commitment, irrationally directing even more resources to our failed course of action—throwing good money after bad.

Organizational biases also inhibit our ability to discuss risk and failure. In particular, teams facing uncertain conditions often engage in groupthink: Once a course of action has gathered support within a group, those not yet on board tend to suppress their objections—however valid—and fall in line.

Groupthink is especially likely if the team is led by an overbearing or overconfident manager who wants to minimize conflict, delay, and challenges to his or her authority.

Collectively, these individual and organizational biases explain why so many companies overlook or misread ambiguous threats. Rather than mitigating risk, firms actually incubate risk through the normalization of deviance,as they learn to tolerate apparently minor failures and defects and treat early warning signals as false alarms rather than alerts to imminent danger.

Effective risk-management processes must counteract those biases. National Aeronautics and Space Administration. The rocket scientists on JPL project teams are top graduates from elite universities, many of whom have never experienced failure at school or work. In fact, they usually have the opposite effect, encouraging a checklist mentality that inhibits challenge and discussion.

Managing strategy risks and external risks requires very different approaches. We start by examining how to identify and mitigate strategy risks. Which model is appropriate for a given firm depends largely on the context in which an organization operates. Each approach requires quite different structures and roles for a risk-management function, but all three encourage employees to challenge existing assumptions and debate risk information.

Independent experts. Some organizations—particularly those like JPL that push the envelope of technological innovation—face high intrinsic risk as they pursue long, complex, and expensive product-development projects.

But since much of the risk arises from coping with known laws of nature, the risk changes slowly over time. For these organizations, risk management can be handled at the project level.

The experts ensure that evaluations of risk take place periodically throughout the product-development cycle. Because the risks are relatively unchanging, the review board needs to meet only once or twice a year, with the project leader and the head of the review board meeting quarterly.

The meetings, both constructive and confrontational, are not intended to inhibit the project team from pursuing highly ambitious missions and designs. But they force engineers to think in advance about how they will describe and defend their design decisions and whether they have sufficiently considered likely failures and defects. At JPL, the risk review board not only promotes vigorous debate about project risks but also has authority over budgets.

The board establishes cost and time reserves to be set aside for each project component according to its degree of innovativeness. The reserves ensure that when problems inevitably arise, the project team has access to the money and time needed to resolve them without jeopardizing the launch date.

JPL takes the estimates seriously; projects have been deferred or canceled if funds were insufficient to cover recommended reserves. Risk management is painful—not a natural act for humans to perform. Many organizations, such as traditional energy and water utilities, operate in stable technological and market environments, with relatively predictable customer demand. In these situations risks stem largely from seemingly unrelated operational choices across a complex organization that accumulate gradually and can remain hidden for a long time.

Since no single staff group has the knowledge to perform operational-level risk management across diverse functions, firms may deploy a relatively small central risk-management group that collects information from operating managers.

We observed this model in action at Hydro One, the Canadian electricity company. Employees use an anonymous voting technology to rate each risk, on a scale of 1 to 5, in terms of its impact, the likelihood of occurrence, and the strength of existing controls. The rankings are discussed in the workshops, and employees are empowered to voice and debate their risk perceptions.

Hydro One strengthens accountability by linking capital allocation and budgeting decisions to identified risks. The corporate-level capital-planning process allocates hundreds of millions of dollars, principally to projects that reduce risk effectively and efficiently.

At the annual capital allocation meeting, line managers have to defend their proposals in front of their peers and top executives. Managers want their projects to attract funding in the risk-based capital planning process, so they learn to overcome their bias to hide or minimize the risks in their areas of accountability.

Embedded experts. The financial services industry poses a unique challenge because of the volatile dynamics of asset markets and the potential impact of decisions made by decentralized traders and investment managers. JP Morgan Private Bank adopted this model in , at the onset of the global financial crisis.

Risk managers, embedded within the line organization, report to both line executives and a centralized, independent risk-management function. Risk managers assess how proposed trades affect the risk of the entire investment portfolio, not only under normal circumstances but also under times of extreme stress, when the correlations of returns across different asset classes escalate.

Avoiding the Function Trap Even if managers have a system that promotes rich discussions about risk, a second cognitive-behavioral trap awaits them.Each company may have different internal control components, which leads to different outcomes. Scenario planning. Hazard identification and risk assessment tools and techniques are described in the international standard ISO The Basel II framework breaks risks into market risk price risk , credit risk and operational risk and also specifies methods for calculating capital requirements for each of these components.

Acceptable Risk Processes:

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