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Risk Management A Balancing Act

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Information about Risk Management A Balancing Act

Published on June 15, 2008

Author: guest81e1c7

Source: slideshare.net

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RISK MANAGEMENT - A BALANCING ACT Pillai Sreejith

Risk (Science) & Management (Art) Investigation & understanding the broad range of risks in relation to the organization's objective Development of the ability to communicate, articulate and manage the identified risks “ Today’s total Risk Manager is the person who can combine art with science to master the challenges & opportunities of a fast-changing world”

Investigation & understanding the broad range of risks in relation to the organization's objective

Development of the ability to communicate, articulate and manage the identified risks

RISKS- A Fact File The word, Risk has been derived from the Latin word, ‘Risicare’, which means ‘ dare ’ The lexicon defines Risk as threat or vulnerability Risk Management (RM) emerged basically as a financial discipline RM is popular analytical method for optimizing insurance coverage RM is globally 50 years old

The word, Risk has been derived from the Latin word, ‘Risicare’, which means ‘ dare ’

The lexicon defines Risk as threat or vulnerability

Risk Management (RM) emerged basically as a financial discipline

RM is popular analytical method for optimizing insurance coverage

RM is globally 50 years old

RISK is a difficult concept to define!!!! And interestingly, (Risk is generally perceived with negative effects but it also signifies opportunity & growth )

Types of Risks Financial Risks Operational Risks Physical Risks Strategic Risks Reputation Risks Business Risks

Financial Risks

Operational Risks

Physical Risks

Strategic Risks

Reputation Risks

Business Risks

RM Scenario in India Still in its infancy Mostly practiced in the Financial & Insurance sectors BCP ( Business Continuity Planning ) is gaining importance

Still in its infancy

Mostly practiced in the Financial & Insurance sectors

BCP ( Business Continuity Planning ) is gaining importance

CASE STUDY “ The Interdependence Between Insurance & Loss Prevention ”

The Investment Project A company invested 300,000 Pounds in setting up a manufacturing plant The management estimated net cash flow of 90,000 Pounds & 12% net return per annum To compensate for the dynamic business risks associated with the project, the company decided that it must earn at least 12% net on the capital invested

A company invested 300,000 Pounds in setting up a manufacturing plant

The management estimated net cash flow of 90,000 Pounds & 12% net return per annum

To compensate for the dynamic business risks associated with the project, the company decided that it must earn at least 12% net on the capital invested

Case Study Approach An overly simplistic approach adopted Objective of this case study “How Investment Decisions can be affected by Risk Management considerations” Factors not considered Risk Transfer Methods Deductibles Premium Discounts Business Interruption Losses (LOP) Liabilities

An overly simplistic approach adopted

Objective of this case study

“How Investment Decisions can be affected by Risk Management considerations”

Factors not considered

Risk Transfer Methods

Deductibles

Premium Discounts

Business Interruption Losses (LOP)

Liabilities

Appraisal of Project- Risk Management Considerations

Conclusion In evaluating investment projects, companies mostly omit risk management considerations If the company is ‘risk averse’ , it would probably would not be prepared to accept the degree of variability in its annual results as shown in case 1

In evaluating investment projects, companies mostly omit risk management considerations

If the company is ‘risk averse’ , it would probably would not be prepared to accept the degree of variability in its annual results as shown in case 1

Insurance & Risk Management Insurance could be part of a comprehensive RM ( Risk Financing) plan A good risk means a healthy bottomline to both the insured and the insurer It is logical that the insurer promote loss control programme for insured as part of their BCP (Business Continuity Plan) “ For every 1 rupee insurance, there is 8 rupee non-insured losses”

Insurance could be part of a comprehensive RM ( Risk Financing) plan

A good risk means a healthy bottomline to both the insured and the insurer

It is logical that the insurer promote loss control programme for insured as part of their BCP (Business Continuity Plan)

RISK MANAGEMENT is not GAMBLING !!! Making Risk Management Decisions Without Reasonable or Prudent Assessment could lead to business failure!!

“ Retention of Risk is Business” RISK RETENTION/ TRASFER IS FINALLY A TOP MANAGEMENT JUDGEMENT

CONVERTING THREAT INTO OPPORTUNITY !! “ Consider identified risks as opportunities to improve & not as threats”

Aftermath of a ‘Bush Fire’ in California “ Managing Risks Better Than their Neighbors” Ice Plants

Ideal Risk Management Holistic Dynamic (Pro-Active) Balanced Cost & Benefit

Holistic

Dynamic (Pro-Active)

Balanced Cost & Benefit

More on Risks……. “Risks reduce the value of a firm to its shareholders. Whether a firm bears a risk or transfers it, risk has a cost, and a firm’s risk management effort is being judged by its ability to manage capital efficiently”

“Risks reduce the value of a firm to its shareholders. Whether a firm bears a risk or transfers it, risk has a cost, and a firm’s risk management effort is being judged by its ability to manage capital efficiently”

Courtesy: The pictures used in the presentation are from various web sites. LOSS PREVENTION COST INSURANCE BENEFIT

LOSS PREVENTION

COST

INSURANCE

BENEFIT

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