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ROLES OF RISK MANAGEMENT FUNCTIONS IN
TABLE OF CONTENTS
1. Purpose of risk management 5
a. Types of risk 6
b. Certain steps to overcome risk 7
2. Benefits of risk management 8
3. Risk management components 9-10
- Risk management means certain set of rules and regulation and procedures which helps and organization to overcome the unexpected danger or risk to the organization and the rules will help the entity to respond the threat in an appropriate manner so that the risk will dissipate.
- Examine and discuss each step below which forms part of the risk management process followed within an enterprise. Explain the reasons behind each step, what each step achieves for the enterprise and give examples.
- Determine the objectives of the organisation – throughout the world every entity has only one target or aim and that is PROFIT. So, to achieve and gain the profit every organization has developed and formed certain sets of goals and objectives. These kinds of goals and objectives will keep the business on the floating boat of success. We can use number of different methods and approaches to define corporate goals and objectives, using formal and informal procedures. Doing this can provide the organization with a definition of its goals and objectives that represent its current thinking. These goals and objectives can then be integrated into the decision-making process so that decisions made with the decision model are structured to impact all levels of the organization and are quantifiable and defensible. Following are the aspect which can help to pre-set of goals and objectives:
- Improve contract performance.
- Minimize operating costs.
- Improve customer management.
- Minimize production costs.
- Maximize customer service.
- Minimize shipping costs.
- Advanced information technology.
- Increase sales.
- Improve profitability.
- Identify exposures to loss – this means that how to identify the reason of loss and what are ways of loss. So, in order to identify it there are several ways to from which the most common and widely used ways are as follows:
- Company should need to analyse the past losses that was occurred and should also know the reasons.
- Must analyse the reports and data to observe the minor damages that was not included in the loss claim reports, to improve the loss exposure in the future.
- Entity must conduct a survey of each and every department or operating units to observe where potential loss can occur and these surveys must be done professionally. Once the survey has been completed, each risk can be ranked Low, Medium or High and appropriate strategies can be used to address each one. Follow is the risk assessment chart:
High Medium Risk
- By the inspection of working site can also be used to measure the loss of exposure e.g. manufacturing departments, transportation facility, natural hazards, isolated/remote location, high crime area, etc. Furthermore, these inspection can be conduct professionally.
- Measure those same exposures - While many loss exposures can be prevented with careful planning and quality production, some loss exposures cannot be avoided. The company must manage its risks in order to control the business’ loss exposure. To manage the risk, the business can implement various strategies to provide protection, including monitoring the quality of its products, seeking professional advice from banking and investment professionals, as well as placing insurance on various areas of the business.
- Select alternatives – There are several risk management alternative to manage the risk and helps to reduce the loss of exposures. Managing staff effectively in extension programmes is a skill that requires constant planning and development. It is the only manage of an entity who can lead to the variety of interpersonal relation and with the collection of vast data a manager can also develop strategies, make decisions and implement the action in proper way. Bond with and through others to achieve organizational goals and objectives are concerned with max. Furthermore the stakeholders can use the best techniques to overcome the loss of exposures.
- Implement a solution - Implementation is the climax of all work in solving a problem and requires careful attention to detail. There are three basic stages involved:
- Planning and preparing to implement the solution.
- Implementing and monitoring the action.
- Reviewing and analysing the success of the action.
- Monitor and review the outcomes – the monitor and review the outcomes is the on-going process in the organization which helps to identify several things which are as follow:
- Controls are implemented and they working fine.
- An injury or incident occurs.
- Data should be analysed to measure the problems.
- Review the components of the outcome (outputs and other activities) and ensure that outputs to be produced are sufficient to bring about the outcome and sustain the benefits.
- Ensure that the results plan for outcome indicators, targets, risks and assumptions are valid, adequate and managed.
- Examine and discuss a risk management frameworks standards model. Discuss the principles behind the model, the drivers and components involved in the process.
- Risk is an event or activity that may have an impact on the credit union’s ability to effectively execute its strategies and achieve its objectives or which may cause a significant opportunity to be missed. The risk management framework introduced a disciplined and structured process that unite information security and risk management activities into the system development life cycle. Below is the illustrated figure of Risk management framework:
- Categorise – the information system and the information processed, stored, and transmitted by that system based on an impact analysis.
- Select - an initial set of baseline security controls for the information system based on an organizational assessment of risk and local conditions.
- Implement – after selecting the appropriate techniques for controlling the risk must be implementing.
- Assess – assess the security control system by using appropriate procedures to determine that implement objectives are working fine and producing the desire outcome.
- Authorize – the risk to organization must be determined by the authorize information system.
- Monitor – most important part of the risk management framework is to monitor, means to monitor all the department, function and equipment are working fine in the operational system.
- Examine and discuss each step below which forms part of the risk assessment process followed within an enterprise. Explain the reasons behind each step, what each step achieves for the enterprise and give examples.
- Identification of relevant business objectives - Identification of objectives is the first step for any organisation as each business has some objectives and goals to accomplish and have some strategies to achieve those goals. Relevant business objectives can be in financial terms. That means the objective is expressed in terms of financial outcome that is to be achieved which include the following:
- Desired sales and profit levels.
- Rates of growth.
- Amount of cash generated.
- Value of the business or dividends paid to shareholders.
Moreover, a popular way to look at objectives is to see them as part of hierarchy of forward–looking terms which help set and shape the strategy of a business. That hierarchy can be summarised as follows:
- Mission: - Mission is the overall purpose of the business.
- Vision: - The overall aspiration of the business.
- Aims or goals: - General statements of what business intend to achieve.
- Objective: - More precise and detailed statements of the aims/goals.
- Identifying events that could affect the achievement of objectives – every organization has developed certain set of goals and objectives to overcome the events which can put the business in danger. Identification, analysis and evaluation of these threats and vulnerabilities are the only way to understand and measure the impact of the risk involved and hence to decide on the appropriate measures and controls to manage them. The events can be identify in different departments of the organization which are as follows:
- Economic events
- Financial market
- Natural environment
- Financial Viability
- Quality of execution
- Service level agreement
- Government / policy changes
- Laws and regulations
- Assessing the inherent likelihood and impact of risks - A lot of our customers ask for advice on whether they should assess risks by Inherent Risk, Residual Risk or both. While our software supports the ranking and assessment of both, the value of assessing Inherent Risk is limited.
- Inherent Impact - The impact that the event would have on the organization if it occurred and there were no controls in place.
- Inherent Likelihood - The likelihood of the event occurring if there were no controls in place.
- Assessing residual likelihood and impact of risks –
- Residual Impact - The impact that the event would have on the organization if it occurred with the current control environment. (This includes Insurance, preventive and detective controls and other risk treatments)
- Residual Likelihood - The likelihood of the event occurring in the current control environment. (This includes Insurance, preventive and detective controls and other risk treatments)
Wikipedia. Enterprise Risks Management: Retrieved April 18, 2014 from http://en.wikipedia.org/wiki/Enterprise_risk_management
Wikipedia. Risk Management: Retrieved April 18, 2014 from http://en.wikipedia.org/wiki/Risk_management
Slideshare. Purpose and goals of Risk management: Retrieved April 19, 2014 from http://www.slideshare.net/Msfent1/the-purpose-and-goals-of-risk-management-4159859
CliftonLasonAllen. Benefits of risk management: Retrieved April 18, 2014 from http://www.cliftonlarsonallen.com/Risk-Management/Five-Benefits-Enterprise-Risk-Management-ERM.aspx