RISK MANAGEMENT Fiza Badar and Naureen Farhan Bahria University Karachi Campus

Abstract: The report consists of the basic information regarding risk management. At the core of effective risk management strategies is the desire to find ways to manage the degree of uncertainty that exists within any business enterprise. Once there is a solid grasp of how the organization functions and the business model is understood, it is possible to identify specific risks that are present throughout the production process, including the delivery of goods and services to buyers. As those risks are identified, they are analyzed for ways to alter the process so that the end result is still achieved, but the degree of risk is minimized or removed altogether. Risk management may be an extremely complicated process or require nothing more than making a few minor adjustments. Keywords: Risk assessment, Evaluation, Measure, Reviews, BCP, BCM, Liquidity risk, Credit risk, Market risk, Exposure risk, Investment risk and Country risk. 1. INTRODUCTION: possession of the company, including personnel, then take steps to correct factors that are highly likely to result in that damage. 1.2 Example: Risk management as it relates to the production process may include action items such as reworking the maintenance schedule for machinery to ensure there is less opportunity for a breakdown or malfunction. Employees may be required to wear safety goggles, gloves, or earplugs in order to ensure safety and thus minimize the chances of injury through company negligence. 2. Steps in Risk Management: 2.1 Risk Assessment: A risk assessment is an important step in protecting your workers and your business, as well as complying with the law. It helps you focus on the risks that really matter in your workplace the ones with the potential to cause harm. A risk assessment is simply a careful examination of what, in your work, could cause harm to people, so that you can weigh up whether you have taken enough precautions or should do more to prevent harm. Workers and others have a right to be protected from harm caused by a failure to take reasonable control measures. Accidents and ill health can ruin lives and affect your business if output is lost, machinery is damaged, insurance costs increase or you have to go to court. You are legally required to assess the risks in your workplace so you must put plans in place to control risks. Risk assessment is the first and therefore the most important step. It not only helps one to evaluate the risk but also help in measuring and reviewing the risk. Assessment of risk identify also the nature of risk associated . ([1])

The actual process of risk management will vary from company to company. The focus may be on employee safety measures, or machinery maintenance. In other companies, risk management may demand revamping policies and procedures in order to rid the company environment of potential risk situations. Risk management normally requires the support of owners and the management team in order to refine the overall operation and achieve the lowest degree of risk The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.possible. 1.1 Definition: Risk management is a logical process or approach that seeks to eliminate or at least minimize the level of risk associated with a business operation. Essentially, the process identifies any type of situation that could result in damage to any resource within the

to capture them all is to use a number of different approaches. ([2]) 2.2 Risk Evaluation: Once you have identified the threats you face, the next step is to work out the likelihood of the threat being realized and to assess its impact .One approach to this is to make your best estimate of the probability of the event occurring, and to multiply this by the amount it will cost you to set things right if it happens. This gives you a value for the risk. 2.3 Managing Risks: Figure 1: Steps in Risk Management. . The first stage of a risk analysis is to identify threats facing you. Threats may be: Human - from individuals or organizations, illness, death, etc. Operational - from disruption to supplies and operations, loss of access to essential assets, failures in distribution, etc. Reputational - from loss of business partner or employee confidence, or damage to reputation in the market. Procedural - from failures of accountability, internal systems and controls, organization, fraud, etc. Project - risks of cost over-runs, jobs taking too long, of insufficient product or service quality, etc. Financial - from business failure, stock market, interest rates, unemployment, etc. Technical - from advances in technology, technical failure, etc. Natural - threats from weather, natural disaster, accident, disease, etc. Political - from changes in tax regimes, public opinion, government policy, foreign influence, etc. Others - Porter's Five Forces analysis may help you identify other risks. This analysis of threat is important because it is so easy to overlook important threats. One way of trying Once you have worked out the value of risks you face, you can start to look at ways of managing them. When you are doing this, it is important to choose cost effective approaches - in most cases, there is no point in spending more to eliminating a risk than the cost of the event if it occurs. Often, it may be better to accept the risk than to use excessive resources to eliminate it. Risk may be managed in a number of ways: By using existing assets: Here existing resources can be used to counter risk. This may involve improvements to existing methods and systems, changes in responsibilities, improvements to accountability and internal controls, etc By contingency planning: You may decide to accept a risk, but choose to develop a plan to minimize its effects if it happens. A good contingency plan will allow you to take action immediately, with the minimum of project control if you find yourself in a crisis management situation. Contingency plans also form a key part of Business Continuity Planning (BCP) or Business Continuity management (BCM). By investing in new resources: Your risk analysis should give you the basis for deciding whether to bring in additional resources to counter the risk. This can also include insuring the risk: Here you pay someone else to carry part of the risk - this is particularly important where the risk is so great as to threaten your or your organization's solvency.

2.4 Reviews: Once you have carried out a risk analysis and management exercise, it may be worth carrying out regular reviews. These might involve formal reviews of the risk analysis, or may involve testing systems and plans appropriately. 3. Risk Management Plan: A Risk Management Plan is a document prepared by a project manager to foresee risks, to estimate the effectiveness, and to create response plans to mitigate them. It also consists of the risk assessment matrix. The following is the risk examination table which tells us the nature of risks and its effects.(wiki

liquidity risk, credit risk, market risks (interest rate risk, foreign exchange risk and risk from change in market price of securities, financial derivatives and commodities), exposure risks, investment risks, risks relating to the country of origin of the entity to which a bank is exposed, operational risk, legal risk, reputational risk and strategic risk. 4.1 Liquidity risk: Is the risk of negative effects on the financial result and capital of the bank caused by the banks inability to meet all its due obligations. 4.2 Credit risk: Is the risk of negative effects on the financial result and capital of the bank caused by borrowers default on its obligations to the bank. 4.3 Market risk: Includes interest rate and foreign exchange risk. Interest rate risk is the risk of negative effects on the financial result and capital of the bank caused by changes in interest rates. Foreign exchange risk is the risk of negative effects on the financial result and capital of the bank caused by changes in exchange rates. A special type of market risk is the risk of change in the market price of securities, financial derivatives or commodities traded or tradable in the market. 4.4 Exposure risks:

Risk Level Extremely High (E)

Mission Effects Mission failure is hazardous.

High (H)

Significantly degraded mission capabilities in terms of required mission standards. Expected degraded missions capabilities in term of required mission standards. Expected losses have little or no impact on mission success.

Moderate ( M)

Low (L)

Include risks of banks exposure to a single entity or a group of related entities, and risks of banks exposure to a single entity related with the bank. 4.5 Investment risks: Include risks of banks investments in entities that are not entities in the financial sector and in fixed assets. 4.6 Risks relating to the country of origin of the entity to which a bank is exposed: (Country risk) is the risk of negative effects on the financial result and capital of the bank due to banks inability to collect claims from such entity for reasons arising from political, economic or social conditions in such entitys country of origin. Country risk includes political and economic risk, and transfer risk.

4. Risk Management in Banking: In the course of their operations, banks are invariably faced with different types of risks that may have a potentially negative effect on their business. Risk management in bank operations includes risk identification, measurement and assessment, and its objective is to minimize negative effects risks can have on the financial result and capital of a bank. Banks are therefore required to form a special organizational unit in charge of risk management. Also, they are required to prescribe procedures for risk identification, measurement and assessment, as well as procedures for risk management. The risks to which a bank is particularly exposed in its operations are:

Operational risk is the risk of negative effects on the financial result and capital of the bank caused by omissions in the work of employees, inadequate internal procedures and processes, inadequate management of information and other systems, and unforeseeable external events. Legal risk is the risk of loss caused by penalties or sanctions originating from court disputes due to breach of contractual and legal obligations, and penalties and sanctions pronounced by a regulatory body. Reputational risk is the risk of loss caused by a negative impact on the market positioning of the bank. Strategic risk is the risk of loss caused by a lack of a long-term development component in the banks managing team. ([3]) Conclusion: We live in a world that is full of risk, risks that we to a large degree have created ourselves, and where naturally occurring risk hardly exists anymore. That is a risk society. With that at the back of his mind, Jan Hoyden of the Norwegian University of Science and Technology, NTNU, developed a framework that incorporates risk and vulnerability, that includes safety hazards and security threats and that adds both a micro and a macro perspective. It is a framework that fully accounts for most if not all of the risks that we have to face to a larger or lesser extent. ([4]) Acknowledgement: This report is a genuine work of mine, therefore sources have also been mentioned. I would like to thank our SAB lecturer Mam Naureen Farhan who really guides us in making this report.

References: [1] Wikipedia [2] Mind Tools [3] National Bank of Serbia (Website) [4]http://www.husdal.com/2010/10/08/risksociety/#ixzz14ciZLPNW Copyright: Jan Husdal / husdal.com.