Risk Management 2.pptVIP

Risk Management 2 Summary of last week’s study Having studied last week’s class you will be able to: Define and explain risk in the context of corporate governance Define and describe management responsibilities in risk management Define and compare (distinguish between) strategic and operational risks Define and explain the sources and impacts of common business risks Recognise and analyse the sector or industry specific nature of many business risks Risk and return Risk and corporate governance There needs to be a link between directors’ remuneration and risks taken by the organisation. Directors need controls or incentives to ensure the risk appetite of the company matches shareholder expectations otherwise directors could decide that the company should accept a level of risk higher than shareholders consider acceptable. Conflicts between shareholder and bondholder Risk and corporate governance Corporate governance frameworks aim to ensure that directors pay sufficient attention to risk management and take appropriate risks. Corporate governance guidelines therefore require directors to: (a) Establish appropriate control mechanisms for dealing with the risks the organisation faces (b) Monitor risks themselves by regular review and a wider annual review (c) Disclose their risk management processes in the accounts. Chapter summary Chapter summary Chapter summary Risk Management Risk Identification Risk Assessment Risk Control Risk control framework Have a structure to deal w/ risk 1)sufficient resource 2)risk cultural 3)tools and techniques Risks Analysis methods and techniques A range of techniques can be used to analyse risks and quantify the impact of risks on the organization. They can be : ? Scenario planning – this is where different possible views of the future are developed, usually through a process of discussion within the organization ? Sensitivity analysis – this is where the values of different factors which could affect an out come are c