Chapter 2 Risk Management A Powerful Tool

Chapter 2: Risk of
Management: A
Powerful Tool
Presented by:
Adan, Joy Ann
Alberca, Kristine
Baccay, Christelle
BSBA FM4B
1950s - 1960s 1970s
- Self-insurance and Risk
Prevention
-Modern financial risk management
emerged, moving beyond just market Evolution of
Risk
risk to include various types of risk
-Planning and Workplace -Expanded to include Self insurance
Management:
protection measures
Risk Management has

1980s 1970s - 1980s evolved significantly
-The role of traditional insurers was over the years. Key
questioned due to high premiums and - Derivatives became widely
limited coverage. used for managing financial milestine include
-alternatives like captives, risk
risks related to interest rates,
retention groups, and finite insurance stock returns, exchange rates,
emerged due to the high costs and and commodity prices.
limited coverage of traditional
insurance.
1990s 2002
-introduced operational and liquidity
risk management, and international
- The Sarbanes-Oxley Act was
introduced in the U.S. to improve Evolution of
Risk
regulations began to take shape. corporate governance and risk
-creation of the Chief Risk Officer management following scandals and
(CRO) role and stricter regulations like
bankruptcies.
Management:
the Sarbanes-Oxley Act in 2002.
Risk Management has

2007 evolved significantly
over the years. Key
-The financial crisis of 2007
exposed deficiencies in risk milestine include
management practices and
enforcement.
Risk Management
The Term Risk is frequently used as a synonym for “Danger”
or “Hazards” However, more accurately, it refers to the
possibility of an event's occurrence, typically with a
negative impact.
Risk management aims to protect companies from financial
problems by reducing the costs associated with risks.
Risk management is important for keeping a company stable
and well-run. Financial institutions, like banks, need extra
attention because their risks can affect many people.
Risk Management
plan
A risk management plan is a term used to
describe a key project management
process. A risk management plan enables
project managers to see ahead to potential
risks and reduce their negative impact.
Risk Management Plan
Components
Risk Identification
Identifying the risks that may be associated with taking on a
new project or continuing an existing one should be the first
step to developing your risk management plan.
Project Risk Assessment

It's important to think about the implications of any new or
existing project on all other areas of your organization.
Risk Management Plan
Components
Risk Assessment Matrix
A risk assessment matrix is the best way for a risk
project manager to collect and aggregate data used
during your risk assessment.
Risk Appetite and Response Plan

Risk response involves developing strategic options
that can increase positive outcomes and reduce risk.
Risk Control
Risk control involves implementing strategies to manage and lessen
potential losses identified during risk assessments.
1. Risk control is the set of methods by which firms evaluate

potential losses and take action to reduce or eliminate such
threats.
2. The goal is to identify and reduce potential risk factors in a
company's operations, such as technical and non-technical
aspects of the business, financial and other issues that may
affect the well-being of the firm
Risk Control Methods
1. Avoidance
is the best method of loss control.
2. Loss Prevention
accepts a risk but attempts to minimize the loss
rather than eliminate it.
3. Loss Reduction
accepts the risk and seeks to limit losses when a
threat occurs.
Risk Control Methods
1. Separation
involves Spreading key assets so that tragic events at
one location affect the business only at that location.
2. Duplication
involves creating a backup plan
3. Diversification
allocates business resources for creating multiple
lines of business offering a variety of products or
services in different industries.
Quantitative and
Qualitative Risk Analysis
Risk Analysis refers to the assessment process that identifies
the potential for any adverse events that may negatively affect
organizations and the environment. Risk analysts often work
with forecasting professionals to minimize future negative
unforeseen effects.
1. Risk Analysis seeks, include,s and entails/involve

2. Quantitative Risk
3. Qualitative Risk
Best Practices in Performing a
Risk Analysis
Step 1: Identify Risk through SWOT analysis
The first step in many types of risk analysis to is to make a list of potential risks you
may encounter.
Step 2: Identify Uncertainty

The primary concern of risk analysis is to identify troublesome areas for a company.
Example: Defective products after shipment.
Step 3: Estimate Impact

Most often, the goal of a risk analysis is to better understand how risk will financially
impact a company.
Example: Company asses that there is a 1% product defection, the company cost
$100 million.
Best Practices in Performing a
Risk Analysis
Step 4: Build Analysis model(s)
The inputs from above are often fed into an analysis model.
Step 5: Analyze Results

With the model run and the data available to be reviewed, it's time to
analyze the results.
Step 6: Implement Solutions

After management has digested the information, it is time to put a plan
into action.
Qualitative vs. Quantitative Risk Analysis
Quantitative Risk Analysis
Under quantitative risk analysis, a risk model is built using
simulation or deterministic statistics to assign numerical values
to risk. Inputs that are mostly assumptions and random
variables are fed into a risk model.
Example: an American company that operates on a global scale

might want to know how its bottom line would fare if the
exchange rate of select countries strengthens. A sensitivity
table shows how outcomes vary when one or more random
variables or assumptions are changed.
Qualitative vs. Quantitative Risk Analysis
Qualitative Risk Analysis
Qualitative risk analysis is an analytical method that does not
identify and evaluate risks with numerical and quantitative
ratings. Qualitative analysis involves a written definition of the
uncertainties, an evaluation of the extent of the impact (if the
risk ensues), and countermeasure plans in the case of a
negative event occurring.
Example: Qualitative risk tools include SWOT analysis, cause

and effect diagrams, decision matrix, game theory, etc.
Risk Mitigation
Risk mitigation is the process of
understanding certain risks and threats,
accepting that they exist, and taking the
appropriate measures to reduce their effects
in case they happen.
Risk mitigation is the strategy that
organizations used to lessen the effects of
business risks
Thank you
very much!
www.reallygreatsite.com

Chapter 2 Risk Management A Powerful Tool

Uploaded by

Copyright:

Available Formats

Chapter 2 Risk Management A Powerful Tool

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 2 Risk Management A Powerful Tool

Uploaded by

Copyright:

Available Formats

Chapter 2: Risk of

-Planning and Workplace -Expanded to include Self insurance

Risk Management has

Risk Management has

Project Risk Assessment

Risk Appetite and Response Plan

1. Risk control is the set of methods by which firms evaluate

1. Risk Analysis seeks, include,s and entails/involve

Step 2: Identify Uncertainty

Step 3: Estimate Impact

Step 5: Analyze Results

Step 6: Implement Solutions

Example: an American company that operates on a global scale

Example: Qualitative risk tools include SWOT analysis, cause

You might also like