Risk

Management

What is Risk?

Risk arises from uncertainty; but all

uncertainties do not carry risk.
Possibility of an unfavorable
outcome of an uncertainty is risk.
Outcome of an uncertainty may even
be favorable. Is that a risk? In
certain cases, yes.

Why take risks?

Because you have to.

Because it brings rewards.
Risk Aversion

Risk Management
Process

Risk Identification / Exposure

Risk Assessment
Selection of risk management
techniques
Implementation
Review

Risk Identification

Risk profile of a company

Formal listing of all potential risks.
External professional help
Risk is inevitable; however
unfavorable consequences of risk
can be controlled.

Degree of risk to be assumed

Classification of Risk

Production risk
Price risk of inputs / outputs
Reputational risk
Project risk
Environmental risk (weather)
Political risk
Economic conditions risk
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Risk Assessment
Having listed all the potential risks,
ask:
How likely is it for any of these risks
to actually materialize?
What is the maximum possible loss
that can arise from each of the listed
situations?
Can you stand that loss?
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Risk Management
Techniques

Risk avoidance
Loss prevention and control

Internal controls

Risk retention
Risk transfer

Risk Transfer Modes

Hedging
Options
Insurance
Diversification

Implementing the Plan

Get quotes, find the best provider

and create a contract.
Keep reviewing the situation.
Keep revising your risk profile.
Keep a record of cost of risk transfer
against benefits of risk transfer.
Amend plans as necessary.
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Is risk management a
Corporate Governance
issue?

Board is responsible for protection

of company assets.
Board must work to improve
shareholders value, which is not
possible without taking some risks.
Not taking risks may be the biggest
risk.

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Risk Management
Reporting
CC of CG requires:
Audit Committees Report
Boards Statement on Internal
Controls

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Audit Committees
Report

List significance risks; how they are

being identified, assessed and
managed.
Report on effectiveness of the systems
put in place to manage these risks
List of actions being taken to remedy
significant failings or weaknesses
Comment on need for greater
monitoring of procedures
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Boards Statement on
Internal Control
Essentially it is about status of internal
controls, e.g.
There is an ongoing process for identifying,
evaluating and managing significant risks.
That the process was there during the year
under report.
It is being regularly reviewed by the Board.
It is in accordance with Turnbull Guidance

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Turnbull Report

Risk Assessment
Control Environment
Control Activities
Information and Communication
Monitoring

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Risk Assessment

Clear objectives, clearly

communicated to all concerned.
Significant risks assessed regularly
Market risks
Technological risks (H&S, Environment)
Credit and liquidity risks
Reputational risks, legal risks

Clear understanding of risks being

retained
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Disaster Recovery Plans

Disasters happen, or are made to

happen.
What plans does a company have to
ensure that:
Its operations are restored quickly
Its data is not lost

Most important for financial

institutions
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Thank you

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