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Risk management and risk register in the context of Corporate Governance …
Risk management and risk register in the context of Corporate Governance
( Managing Opportunities and Risks 2008)
IDENTIFYING RISKS & OPPORTUNITIES
Sources of Risk
Operational Risks
Environmental risks ,Financial risks ,Business continuity risks, Innovation risks, Commercial risks, Project risks, Human resource risks ,Health and safety risks ,Property risks and Reputation r
isks
Reporting Risks
I
nformation risks and Reporting risks
Strategic Risks
Economic risks ,Industry risk,s Strategic transaction risk,s Social risks, Technological risks, Political risks and Organizational risks.
Compliance Risks
Legal and regulatory risks ,Control risks and Professional risks
Sources of Opportunity
Sources of Opportunity Within the Organization
Supply chain, Product and service offering, Process, Technology and New markets
Sources of Opportunity Beyond the Organization
Customers ,Competitors and complementors ,Emerging technologies and scientific developments ,Influencers and thought shapers , Political,legal and social forces
Strategies for Identifying Risks & Opportunities
Learning from others
Scanning
Developing Customer sensitivity
Scenario planning
Learning from the past
Seeing the market gaps and change the game
Developing Market sensitivity
Developing idealized designs and competing in advance
.
MANAGING RISKS & OPPORTUNITIES
Managing Risks
Transferring Risk
Shifting the responsibility or burden for loss to another party through insurance,contract,or other means,can play a key role in helping to minimize losses from risk
Reducing Risk
Actions to reduce the likelihood of risk,its impact, or both,can take several forms.Risk avoidance— ceasing the activities that give rise to risk—is the most
Sharing Risk
This method of risk mitigation distributes the possible consequences of risk among two or more parties
Managing Innovation
An innovation system fulfills five critical roles
Coordination
Learning
Communication
Alignment
Efficiency
Implementing an Innovation Management System
Measurement
Incentives & Rewards
Structure
Learning systems
Identification of potential innovations
Alignment
Assessing Risks & Opportunities
Assessing Opportunities
quantifying the number of new customers
Calculating the potential sales growth that could stem from capturing the opportunity,or
calculating the likely profit from the innovation
measuring the residual income (accounting income – capital charge) to calculate value added as a result of capitalizing on the innovation
assessing the increased market share that can be captured
Assessing Risks
Assess the probability that the risk will emerge and affect the company
Quantify this impact on the company. (Magnitude) x (Probability)
Quantify the magnitude of the impact of the risk
Analyze the cost/benefit of taking action to mitigate risk.
Prioritize various risks in a ranking to understand which are most critical.
Assess and Alter Risk Appetite
Altering Risk Appetite
Although the board sets the overall risk philosophy,sometimes there is a sense within organizations that capturing opportunities poses too many threats,preventing organizations from capitalizing on identified prospects.If the goal is to capture an opportunity,and risk appetite is a hurdle,altering the risk appetite might be desirable
Assessing Risk Appetite
Assessing Risk Appetite A company’s risk appetite is heavily influenced by its culture and changes over time.The formal enablers of a company’s culture—and determinants of its risk appetite— include the CEO,other company leaders,and the strategy these leaders implement. Informal processes and enablers also influence corporate culture and the company’s attitude towards risk,including the company’s human resources and other factors