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Risk Management and some examples - Coggle Diagram
Risk Management and some examples
Different Risks
1.
Financial
risk
2.
Operational
risk
Strategic
risk
4.
Hazard(safety)
risk
Risk Management
1.identifying potential risks
in advance
3.The most causes are
Strategic risk
(86%)
4.The most time consuming are
Operating
(42%) and
Financial Reporting
(39%)
The process of Risk Management
1.Risk evaluation
(Risk
appetite
and Risk
tolerance
)
2.Risk mitigation
（Depends on
evaluation
）
Choice of
actions
1.
Avoid
(change strategy, stop doing that activity)
2.
Accept
(
within tolerance
, plan for if it happens)
5.
Transfer
(
let someone else try it first??
)
4.
Share
(insurance, security, hedging, outsourcing,
partners
)
3.
Reduce
(controls)
3.Risk monitoring
1.Includes reporting –
internal
and
external
2.Regular
re-assessment
of risks – identify new ones, remove old ones, re-measure and re-evaluate
3.Needs to be
dynamic exercise
Risk management and corporate governance
1.
Good performance
of the organization
2.
Proper accountability
to all stakeholders
3.
Mitigation of conflict
of interests
4.1Main points
(corporate governance)
4.2Risk manegement in
board structure
Shareholders nominate
the board of directors
2.The board sets
the business policies
3.The Board includes
the Executive Directors
whose responsibility is to
manage the business on a day by day basis.
4.Usually, there is a
Chief Risk Officer
within the board and/or a Risk Manager
4.3The new define :Corporate governance : Monitoring and controlling using
a macro view of the institution
build around
a shared cultural approach.
4.4Some new point
Corporate governance
encompasses
risk management
Risk management of
internal control over financial reporting,
but management of other risks
not so prominent
A specialist risk management team, which needs
a clear reporting line
to the board and the board needs to have
oversight and awareness
and
set tone
on risk management
Risk disclosures
are required in narrative sections of annual reports
but these are often
poor
ADD:The VW's Example:
1.Root causes:
poor risk management
and
resulting scandals
2.The
complex
corporate governance structure
3.Supervisory board, but only
1 member independent of company and controlling shareholders
– insufficient challenge, need
more NEDs
4.Issues with
culture, processes and decision-making of the board
5.Criticisms of risk management practices
1.Treating risk :as a
compliance issue
, one-off
not continuous exercise
2.Ignoring risks :
Not considering
interaction
of risks, or risks that
span several functions
Insufficient challenge
of initial assessment – which may be overconfident, groupthink
No one size
can fit all approach for all risks – rules and procedures won’t always work
Risk managers not
close enough
to senior management to have influence, communicate etc.
Lack of accountability or attention on
non-financial-reporting
risks
Disconnect
between incentives and risk management (
incentives
can create further risks or encourage risk-taking beyond appetite of business)
6.The future of risk management
Kaplan and Mikes (2012)
Categorise risks
differently and
tailor risk management
approach
1.Category
2.Approach to risk management
3.Example
Preventable risks
Internal
Active prevention – culture, training, guidance, rules, penalties for employees
Bribery by employees
Strategy risks
Not undesirable
Reduce probability and improve ability to respond if it happens
Price undercut by competitor
External risks
Outside organisation’s control
Identify and mitigate impact
Volcanic eruption
2.
Analysing
them and taking precautionary steps to
reduce/curb the risk
Conclusions
1.Significant change in Risk Management is needed to improve it
at many organisations
2.Need to learn from
others’ mistakes
3.Elimination of
all risks
is a risk
4.Need to get away from
a compliance-driven exercise,
tailor processes to organisation and within governance structure and culture