Modern Corporate Risk Management

A PROJECT SUBMITTED IN

PART COMPLETION OF

MASTERS OF FINANCIAL MANAGEMENT

TO

TIMSR

SUBMITTED BY

SHRADDHA PRAKASH KADAM

Roll Number:- F-17-20-14

UNDER THE GUIDALINES OF

PROF. SARVESH BANSAL

MFM – BATCH – 2017-2020

THAKUR INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

Shyamnarayan Thakur Marg, Thakur Village,

Kandivali (East), Mumbai 400101

 CERTIFICATE

This is to certify that the study presented by Ms. SHRADDHA PRAKASH KADAM to THAKUR
INSTITUTE OF MANAGEMENT STUDIES & RESEARCH in part completion of FINANCIAL
MANAGEMENT under “MODERN CORPORATE RISK MANAGEMENT” has been done
under my guidance in the year 2017-20.

The Project is in the nature of original work that has not so far been submitted for any other course in
this institute or any other institute. Reference of work and relative sources of information have been
given at the end of the project

Signature of the Candidate

MS. SHRADDHA KADAM

Forwarded through the Research Guide

Signature of the Guide

PROF. SARVESH BANSAL

 ACKNOWLEDGMENT

I feel immense pleasure to present my project report on “Modern Corporate Risk Management”
It is not only due to my alone efforts instead many hands contribute to its successful completion.
Therefore, I would link to thank all of them.

Hence it is may due acknowledge with gratitude the help rendered to me by these individual, without
I have not been able to achieve the best of my abilities & to satisfaction of superiors. Firstly it is my
pleasure to thank University o Mumbai for assigning us a subject known as project work & giving
me an opportunity to work in this project.

I would like to thank my project guide Prof. Sarvesh Bansal without whom this project was not
possible. My heartily thanks to all people who left unmentioned here but have contributed to give
me a sharp & rewarding insight how my project should be carried.
 Declaration

I Ms. SHRADDHA PRAKASH KADAM student of THAKUR INSTITUTE OF

MANAGEMENT STUDIES & RESEARCH hereby submit my project entitled as “MODERN
CORPORATE RISK MANAGEMENT” in the academic year 2017-2020.

The subject matter contain in this project is the original as was done under the guidance of
PROF. SARVESH BANSAL. However this material has been picked up, has beenused to enhance
the clarity of the hypothesis and has been used for academic purpose only.

I further assert that this project or any part of it has never been submitted by any one or else to any
university in the world.

Date:

Place:

(Signature of the Student)

Name: Ms. Shraddha Kadam

Roll no: F-17-20-14

 EXECUTIVE SUMMARY

Risk is seen as producing both positive outcomes (via opportunities) and negative outcomes (via
hazards). Risk management does not focus only on eliminating or reducing risk, but on finding a
proper balance between risk taking and risk mitigation. Risk management exists to directly support
the fulfillment of organizational (or situational) objectives, and thus is seen as an element of the
policy setting, strategy setting, governance dimension of management, and leadership. While top
management should establish clear expectations, the general view is that the implementation and
practice of MRM is dispersed throughout the entire organization and embedded in processes and
systems. In this context, MRM explores ways to connect itself to organizational culture and
organization values.

Why and how has this happened?

A new environment of expectations has emerged over the past 20 years for the practice of risk
management. Drivers of these expectations can be found in a wide range of sources: regulator and
rating agency interests in corporate resiliency, internal and external audit requirements, citizen
expectations for local government responsiveness to community safety issues, and global
expectations for meaningful responses to climate change.

• Information systems and the influence of the media;

• Fears arising from new and highly mysterious (at least mysterious to the general public) risks;
• Greater degrees of global inter-connectivity; and
• The intensifying focus on residual risk as science and technology improve quality of life in wide-
ranging ways (e.g. controlling infectious diseases, improved public safety).
• Many of these expectations also have emerged in response to specific events: sensational cases of
corporate fraud and malfeasance, oil spills, volcanoes, terrorism, and financial crises.
 Objective of study Risk Management

Risk management involves the accurate and correct methods to manage risks. Risk is the uncertainty
of an event or unforeseen incident or any unwanted situation. It can also be turned into a major disaster
for any organisation, therefore, it is very important to manage risk because of the following reasons :

1. To easily identify risks either before occurring or at the initial stage only. Some categories of
risk that can easily be identified are financial, reputational, operational, strategic, safety, etc.

2. To reduce scams and scandals. If any organization performs risk management effectively then
they can identify the possible scandals and then they can find solutions accordingly. Scams and
scandals hamper the growth of any organization.

3. To ensures the safety of any important information that can be leaked. Data security is the most
important thing for an organization. Risk management helps in protecting the data and prevents
financial risks as well.

4. Strategic planning of risk management might bring in great opportunities. These opportunities
always help in the growth of any business.

5. Risk management helps you to work towards the projects that need major attention. It not only
helps in solving troubles but it also eliminates the hindrances coming in the way.

6. Risk management helps in securing an organization’s future and helps them in the long run.
 Literature review
A literature review was conducted in investigation recent research and current research related
to performance measurement, risk assessment, and risk management implementation of the
company. The source the literature review included professional journals, articles and current
practices. This summarises the review, organised by risk management, performance measurement,
and database. The review of risk management literature focused on two primary areas financial
performance specific approaches in risk management and overall performance measurement of the
company.

● Crouhy, Gala, Marick (2001): -

Have summarized the core principles of Enterprise wide Risk Management. As per the authors Risk
Management culture should percolate from the Board Level to the lowest level employee. Firms will
be required to make significant investment necessary to comply with the latest best practices in the
new generation of Risk Regulation and Management. Corporate Governance regulation with the
advent of Sarbanes-Oxley Act in US and several other legislations in various countries also provide
the framework for sound Risk Management structures. Hitherto, Enterprise wide Risk Management
existed only for name sake. Generally firms did not institute a truly integrated set of Risk measures,
methodologies or Risk Management Architecture. The ensuing decades will usher in a new set of
Risk Management tools encompassing all the Activities of a Corporation. The integrated Risk
Management infrastructure would cover areas like Corporate Compliance, Corporate Governance,
and Capital Management etc. Areas like business risk, reputation risk and strategic risk also will be
incorporated in the overall Risk Architecture more formally. As always it will be the Banks and the
Financial Services firms which will lead the way in this evolutionary process. The compliance
requirements of Basel II and III accords will also oblige Banks and Financial institutions to put in
place robust Risk Management methodologies.

The authors felt that it is generally felt that Risk Management concerns largely with activities within
the firm. However, during the next decade Governments in different countries would desire to have
innovatively drawn Risk Management system for the whole country. The authors draw reference to
the suggestions of Nobel Laureate Robert Merton who suggested that a country with exposure to a
few concentrated industries should be obliged to diversify its excessive exposures by arranging
appropriate swaps with other countries with similar problems. Risk Management offers many other
potential macro applications to improve the management of their social security measures etc. They
draw references to the spread of Risk Management Education worldwide.

● Carl Felsenfeld: -

Outlined the patterns of international Corporate Company’s regulation and the sources of governing
law. He reviewed the present practices and evolving changes in the field of control systems and
regulatory environment the book dealt a wide area of regulatory aspects of Corporate company’s ing
in the United States, regulation of international Corporate Company’s, international Corporate
company’s services and international monetary exchange. The work attempted in depth analysis of
all aspects of Corporate company’s Regulation and Supervision. Money Laundering has been of
serious concern worldwide. Its risk has wide ramifications. Money Laundering has lead to the fall of
Corporate company’s like BCCI in the past. In this context the book on Anti-Money Laundering:
International Practice and Policies by John Broome Published by sweet and Maxwell 22 (August
2005) reviews the developments in the area of Money Laundering. The author explains with
reference to case studies the possible effects of Money Laundering. The book gives a comprehensive
account of the existing rules and practices and suggests several improvements to make the control
systems and oversight more failsafe.

● Hannan and Hanweck:-

Felt that the insolvency for Corporate company’s become true when current losses exhaust capital
completely. It also occurs when the return on assets (ROA) is less than the negative capital- asset
ratio. The probability of insolvency is explained in terms of an equation p, 1/(2(Z2 ). The help of Z-
statistics is commonly employed by Academicians in computing probabilities.

● Daniele Nouy: -

Elaborates the Basel Core Principles for effective Corporate Company’s Supervision, its
innovativeness, content and the challenges of quality implementation. Core Principles are a set of
supervisory guidelines aimed at providing a general framework for effective Corporate
Company’ssupervision in all countries. They are innovative in the way that they were developed by
a mixed drafting group and they were comprehensive in coverage, providing a checklist of the
principal features of a well-designed supervisorysystem. The core Principles specify preconditions
for effective corporate Company’s supervision characteristics of an effective supervisory body, need
for credit risk management and elaborates on Principle 22 dealing with supervisory powers. Dearth
of skilled human resources, poor financial strength of supervisor and consequent inability to retain
talented staff, inadequate autonomy and the need for greater understanding of modern risk
management techniques are identified as the main difficulties in quality implementation. The critical
elements of infrastructure, legal framework that supports sound corporate Company’s supervision
and a credit culture that supports lending practices are the essence of a strong corporate Company’s
system. Widespread failures have occurred during a period of increased vulnerability that can be
traced back to some regime change induced by policy or by external conditions.

● Patrick Honohan (2010): -

Explains the use of budgetary funds to help restructure a large failed Corporate company’s/Corporate
Company’s system and the various consequences associated with it. The article discusses how
instruments can best be designed to restore Corporate company’s capital, liquidity and incentives. It
considers how recapitalization can be modeled to ensure right incentives for new operators/managers
to operate in a prudent manner ensuring good subsequent performance It discusses how
Government’s budget and the interest of the tax payer can be protected and suggest that monetary
policy should respond to the recapitalization rather determine its design. The author proposes the
following four distinct policy tools to achieve 23 four distinct goals-injecting assets, adjusting capital
claims on the Corporate company’s, rebalancing the govt’s own debt management and managing
monetary policy instruments to maintain stability. The author also assessed the effect of corporate
company’s recapitalization for budget and debt management and implications for monetary policy
and macroeconomic environment in his article.

● Jacques de Larosiere:-

Former Managing Director of the International Monetary Fund(31) discusses the implications of the
new Prudential Framework. He explains at length how the new Regulatory code could have some
dangerous side effects. The increased capital requirements as decided by the Basel Committee on
Corporate Company’s Supervision in September 2010 will affect the amount of own funds would
affect the profitability of the Corporate company’s. The consequences of such increased capital
requirements would incentives the corporate company’sto transfer certain operations that are heavily
taxed in terms of capital requirements to shadow corporate Company’s to avoid the scope of
regulation. The risks of such a practice might affect the financial stability. While the Central
Corporate Company’s practice might affect the financial stability. While the Central Corporate
Company’s authorities might contemplate registration and supervision of such shadow corporate
Company’s entities like the hedge funds and other pools, such a Course might be more cumbersome
than expected. The new regulation would result in the Corporate company’s to reduce activities with
rather poor margins. For example they may reduce exposure to small and medium enterprises or
increase credit costs or concentrate on more profitable but higher risk activities. He is also critical of
the proposal of Basel to introduce an absolute leverage ratio that might push Corporate company’s
to concentrate their assets in riskier operations. The author feels that the corporate Company’s model
which favours financial stability and economic growth might become the victim of the new
prudential framework, and force Corporate company’s to search for assets with maximum returns
despite the attendantrisks.

● William Allen (2010)

Of Cass Business School, City University London strongly criticizes the Basel Committee on
Corporate Company’s Supervision announcement increasing the capital requirements as part of
Basel III. The aims of increasing the capital are two-fold. Firstly the objective is to increase the
amount of liquid assets held by Corporate company’s and reduce their reliance on short term funding.
It also aims at limiting this extent to which Corporate company’s can achieve maturity
transformation.

● Glenn Koller

Is a SeniorAdvisor for Risk Evaluation at BP with responsibilities including implementation of risk-

assessment and risk-management technologies and processes in the corporation, development of
statistical routines that comprise corporate risk systems, marketing risk technology, and performing
technical and consulting services. His experience includes portfolio management, business and
product development, managing environmental concerns, ranking and prioritization of projects and
products, analysis of legal scenarios, and other aspects of the corporation’s diversified business.

● Abel Mateus (2010)

This appeared also in the IUP Journal of Corporate Company’s & Insurance Law, Vol.VIII, Nos.1
& 2, 2010 made a thorough study of the Regulatory reform requirements in the modern context after
the global meltdown. He starts by summarizing the basic principles that should be covered in the
financial reforms. He reviews the progress achieved by the Financial Stability Board (FSB) and Basel
Committee on Corporate Company’s Supervision. He discusses the unresolved issues like the
relationship between competition policy and financial stabilization policies. He throws particular
light on the oft quoted „Too-Big-To-Fail‟ (TBTF) concept. He outlines measures to improve the
supervision of capital markets to protect consumers and Investors. The articles discuss at length the
revision of Corporate company’s Capital Requirements and Accounting Procedures, revising the role
of Credit Rating Agencies, the supervision and regulation of Hedge Funds, Commodity Funds and
Private Equity Funds. Complex issues of Derivatives Mortgage Securitization etc. Have also been
Regulation, discussed and the author came out with suggested methods to address these difficult
issues.

School of Economics and Political Sciences

Is a very important document in analyzing the role of finance in the build-up to the recent crisis.
The tax bail – bail-outs have been criticized and the gradual increase in the equity financing would
shift the responsibility of any crisis towards the shareholders.
As per Peter Boone and Simon Johnson, the global financial system is facing grave risks due to the
bail-out policy of the Western Governments. As Regulatory bodies like the Central Banks are keen
to increase the degree of oversight, the Banks would create new loopholes. The authors opine that
in the absence of any international treaty for the regulation of global financial institutions, macro
prudential measures and proper Risk Management systems are necessary for the management of
financial system.

As per Goodhart the cost of Bank failures can be very large which lends justification to impose tighter
supervisory and regulatory measures. He argues that the proposals under the Basel III to increase the
capital higher levels like 20-30% are very justified. This is strongly objected by Laurence Kotlikoff
who feels such higher levels of capital would penalize the Shareholders and Depositors and goes
against the very principle that Financial Institutions are agencies which should have the benefits of
gearing.

RESEARCH METHODOLOGY
 To complete any project one need to do is research for this project is done through two methods.

1: Primary data

2: secondary data

1. Primary data

Primary data is that type of data which is collected for the first time and for the specific purpose of the
research. In simple words this data does not prevail to be collected unless the need is desired for it.
This type of information is the first hand information collected exclusively for the purpose of the
research.

The main advantage of using primary data is because it can be easily relied upon as the data is fresh
and without any contamination and adulteration. Secondly primary data is collected as this data is not
available anywhere. However the main disadvantage of collecting primary data is that it takes lot of
time to conduct the data. Secondly it requires lot of effort and cost in conducting the research. Some
of the common tools of conducting primary data are by way of surveys, interview, focus group
discussion, in-depth interview, observation techniques and other form of discussion forums and panels

2Secondary data

Secondary data is the form of data which is already present in the market and was collected by some
other person for some different purpose. Any form of data which is collected and used immediately
becomes secondary data for others. For example many researchers carry out research which is primary
but for students and academicians this later becomes secondary which we then refer in journalsand
magazines. This type of data has more to do with past rather than the present since it is historical in
nature. In simple words secondary form of data is any form of data which is present in the universe
and collected by someone else for some other purpose

INDEX
 Content List

Sr. Topic Page

No No
Section I

01 Introduction and Types of Corporate Risk Management 01-11

02 Risk Management Standard 12-14
03 Risk Management Strategies and Process 15-18
04 Different Risk Management Decision in different filed 19-21

05 How do modern companies assess business risk trough the better 22-30
knowledge management?

Section II

06 Internal, External Audit and Risk Management 32-34

07 The responsibility of the committee towards risk management 35-38
08 Financial Statements the committee shall review and recommend 39-40
09 Structure and composition of the committee 41-43
10 Limitation Of Risk Management 44
11 KPMG Auditors Views on Corporate Risk Management 45-46
12 Personal interview with an Internal and external auditors 47-49
13 Questionnaires and Analysis 50-59
14 Recommendation and Conclusion 60
15 Learning and Outcomes 61

16 References 62
MODERN CORPORATE
RISK MANAGEMENT