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FRM Presentation 2

Risk management involves identifying, assessing, and controlling threats to an organization's capital and earnings from a variety of sources. These risks could stem from financial uncertainty, legal liabilities, strategic errors, or accidents. While risk management costs money, the benefits include compliance, improved governance, understanding operational and opportunity risks, better risk reporting, and increased stakeholder satisfaction. Organizations consider risks like market trends when developing strategic plans to meet objectives. Risks also stem from stakeholders like employees, suppliers, customers, regulators, media, investors, and partners that could damage safety, assets, revenues, legal obligations, or delivery of goods and services.

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Paul Banerjee
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212 views20 pages

FRM Presentation 2

Risk management involves identifying, assessing, and controlling threats to an organization's capital and earnings from a variety of sources. These risks could stem from financial uncertainty, legal liabilities, strategic errors, or accidents. While risk management costs money, the benefits include compliance, improved governance, understanding operational and opportunity risks, better risk reporting, and increased stakeholder satisfaction. Organizations consider risks like market trends when developing strategic plans to meet objectives. Risks also stem from stakeholders like employees, suppliers, customers, regulators, media, investors, and partners that could damage safety, assets, revenues, legal obligations, or delivery of goods and services.

Uploaded by

Paul Banerjee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Risk management

• Risk management is the process of identifying, assessing and


controlling threats to an organization's capital and earnings.
• These threats, or risks, could stem from a wide variety of sources,
including
• Financial uncertainty,
• Legal liabilities
• Strategic management errors
• Accidents and natural disasters
• Risk Management costs money

• Non operational budget

• Investment for
• What return?
• What benefit?
Benefits of risk management
• Potential benefits include:
-compliance with legislation and regulation

-improved corporate governance (top management control)


• Appoint Competent Board Members
• Ensure Timely Information
• Prioritize Risk Management
• Evaluate Board Performance

-understanding (and therefore avoiding or reducing) operational risk

- understanding risks associated with opportunities (better choices)

-improvement in both internal and external risk reports

- communication (increase in stakeholder satisfaction)

4
 avoidance of disasters;
• reduction in frequency of incidents;
• reduced insurance costs;
• increased likelihood of meeting organisation objectives;
• preservation of reputation;
• improved health and safety; and
• quicker recoveries from emergencies.
Risk management activities should include the measurement of benefits, if
possible in financial terms, to justify the use of resources and budgets.
5
Risk and Organizational Objectives
• All organisations have a range of objectives

• A stakeholder is defined as any individual, group or


organization that can affect, be affected by, or perceive itself
to be affected by, a risk

• Organizations develop strategies and plans to demonstrate


those objectives can be met

• Traditional dependencies are changing as modern business


models have emerged over the last decade or so

• Evolve with the new challenges


6
Risk and Organizational Objectives
• Organizations are becoming more globally oriented and increasingly look
to outsourcing
• Modern businesses tend to be leaner than their traditional counterparts,
offering less margin for error
• Risks are anything with the potential to threaten the operations, assets
and other responsibilities of an organisation

7
Risk and Organizational Objectives
• Directors of an organisation will normally consider risks prior to building a strategic plan:
• market factors and trends
• potential competition moves
• possible technological changes
• developing the needs of the customers they serve.

8
Organisation as nexus of Contracts
Risks from stakeholders:
• Employees
• The behavior of employees is not always be aligned with organisation
objectives.
• Risks of fraud and general negligence must be considered
• Willful damage being caused by disgruntled staff
• Any thing that might make employees dissatisfied must be viewed as
risk
• Threatens efficient operations and achievement of objectives
• Suppliers
• Trust& confidence
• Legal agreement
• Supply chain – responsible suppliers
• Customers
• Loose confidence in case of abnormality
• No repetitive business
• Legal implications
• Regulator
• Fines & penalties
• Unfavorable opinions
• Requirement compliance
• Media
• Unfavorable opinion results in negative publicity

• Private investors
• Investments of them might be non diversified
• Personal & professional lives at stakes
• Investors with non monetary stakes – reputation at risk
• Banking Industry
• Borrower found to be weak, loan amounts might be called back
• In case of default, collateralized assets are auctioned
• Increases cost of borrowing
• Quoted shareholders
• Shareholders can sell of their positions
• Free fall of prices
• Cost of borrowing increases
• Business partners
• Multiple partners
• Shared brand values & reputation
• Failure of one can be destructive to firm
• Environment
• Fraud
• Money laundering
• Insider dealing
• Waste disposal, energy & conservation etc impact upon environment
Protection against damage or loss
Damages can happen in other ways too..
Couple of things to be considered
• Safety of people
• Safety of assets
• Revenue and cash flows
• Legal obligations
• Delivery of promised goods & services
Safety of people
• Safe environment for employees and visitors from
• accidents & crimes
• Illness, stress, bullying, radiation hazard etc
• Availability of skilled resources
• Teams
• Groups
Safety of assets
• Balance sheet assets
• Buildings, money, equipment etc
• Off balance sheet assets
• Intellectual assets – information
• Training, expertise of workforces, credit ratings, recipes etc
• Reputation, brand
• Network of critical suppliers, relationships and contracts
• Distribution system
• Customer base
• Revenue & cashflows
• Efficient financial and credit controls
• Legal obligations
• Compliance is highest priority
• Regulator license approvals
• Contractual liabilities
• Environmental responsibilities
• Fines and penalties from criminal law
• Litigation expenses
Delivery of promised goods and services
• Defects /low quality of product – costly
• Timely delivery
• Post sales service

• Imagine
• Regular sales service along with recall product service

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