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Risk management process (1) (risk management control cycle (Risk…
Risk management process (1)
risk management control cycle
Risk identification- seen as the hardest aspect because risks are numerous and the identification needs to be comprehensive. The biggest risks are the unidentified ones!
Risk measurement
probability of a risk event occurring
the likely severity
Risk control
implementation of systems that aim to mitigate the risks or consequences of risk events (FAT SIR)
Risk financing
determination of the likely cost of a risk and making sure the capital is available to cover that cost
Risk monitoring
regular review and re-assessment of existing risks
the identification of previously omitted risks
benefits of a good risk management process (DISCO RAGE)
managing risk at the business unit level
parent company determines overall risk appetite and then divides it amongst the business units. Each business unit manages its risks within the allocated risk appetite.
makes no allowance for the benefits of diversification or pooling of risk
enterprise risk management
risks are managed at the enterprise or group level rather than by each business unit separately
benefits
diversification
pooling of risks
economies of scale in terms of the risk management process
capital efficiency as capital can be better targeted
providing insight into risk in different parts of business
understanding the risks better and so adding value by exploiting risk as an opportunity