Documente Academic
Documente Profesional
Documente Cultură
SUBMITTED BY
WIKI
PEDIAS
NO
1
2
STUDENT NAME
ROLL NUMBER
13262
13235
13271
13304
13270
ABDUL REHMAN
ZEESHAN AHMAD
AHMAD NUMAN
TAHIRA SIDIQUI
WAQAS
3
4
5
SUBMITTED TO
SIR ASIF MASOOD
TOPIC
STRATEGIC RISK
SUBMISSION DATE
Page 1
29/OCTOBER /2015
Superior
University Lahore
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ACKNOWLEDGEMENT
First of all we are thankful to Almighty Allah who in spite of all our
weaknesses enabled us for this type of project.
We are also indebted to our teacher SIR ASIF for their kind of
guidance
and
supervision.
Under
their
direction
we
get
the
to ascribe the most and ever burning flame of our gratitude and deep
scene of devotion to MR ASIF who taught us RISK MANAGEMENT
with heart and also gave guidelines to this work.
Further on, we are grateful to our parents it is the result of their
prayers that we are succeeded.
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What is risk?
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negative
that
than the
expected return.
The possibility that something bad or unpleasant (such as an injury or
loss)
person
or thing
(By MerriamWebster)
Business risks are the factors that could prevent or hinder the achievement of organizational
goals and objectives
but when a mode of occurrence or the actual value of the occurrence (whether the fire will
occur at a particular property) is not. A risk is not an uncertainty (where neither the
probability nor the mode of occurrence is known), a peril (cause of loss), or a hazard
(something that makes the occurrence of a peril more likely or more severe).
Securities trading:
The probability of a loss or drop in value.
Workplace:
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Examples of risk
A teenager knows that she will be grounded if she chooses to invite friends over after
school instead of doing her homework, but also knows that the likelihood of her
parents finding out she did so is slight. If the teenager chooses to invite her friends
over she is taking a risk of getting in trouble with her parents.
A 55-year old man wants to quickly increase his retirement fund. In order to do so at a
rapid pace, he must change his investments to those that could either yield higher
results or completely fail, in which case he would lose his retirement. If the man
chooses to move his investments to those in which he could possibly lose his money,
he is a taking a risk.
1.
2.
3.
4.
5.
6.
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Why manage
There
are
many
risks?
reasons for managing risk. Here
are some:
seek
to
practice,
bodies
Page 6
or by industry groups.
ISO 31000 2009 Risk Management Principles and Guidelines
IRM/Alarm/AIRMIC 2002 developed in 2002 by the UKs 3 main risk organizations.
ISO/IEC 31010:2009 - Risk Management - Risk Assessment Techniques
COSO 2004 - Enterprise Risk Management - Integrated Framework
Avoid it
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Reduce it
Transfer it
Accept it
and youll
necessary
to avoid a risk, and other times youll want to reduce it, transfer it, or simply accept it. Lets
look at what those terms mean, and how to decide on the right classification to use for each
of your own business risks.
Avoid the Risk
Sometimes, a risk will be so serious that you simply want to eliminate it, for example by
avoiding the activity altogether, or using a completely different approach. If a particular
type of trading is very risky, you may decide its not worth the potential reward, and
abandon it.
The advantage of this strategy is that its the most effective way of dealing with a risk. By
stopping the activity thats causing the potential problems, you eliminate the chance of
incurring losses. But the disadvantage is that you also lose out on any benefits too. Risky
activities can be very profitable, or perhaps have other benefits for your company. So this
strategy is best used as a last resort, when youve tried the other strategies and found that
the risk level is still too high.
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options
like factoring and lines of credit, see our tutorial on borrowing money to fund a business.
Transfer the Risk
Were all familiar with the concept of insurance from our everyday lives, and the same
applies in business. An insurance contract is basically a transfer of risk from one party to
another, with a payment in return.
When you own a home, for example, theres a big risk of losses from fire, theft, and other
damage. So you can buy a home insurance policy, and transfer that risk to the insurance
company. If anything goes wrong, its the insurance company that bears the loss, and in
return for that peace of mind, you pay a premium. When you own a business, you have the
option to transfer many of your risks to an insurance company as well. You can insure your
properties and vehicles, and also take out various types of liability insurance to protect
yourself from lawsuits. Well look at insurance in more detail in the next tutorial in the series,
but its a good option for dealing with risks that have a large potential impact, as long as you
can find an affordable policy.
Accept the Risk
As weve seen, risk management comes at a price. Avoiding a risk means constricting
your companys activities and missing out on potential benefits. Reducing a risk can
involve costly new systems or cumbersome processes and controls. And transferring a
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Types of risks
Businesses face all kinds of risks, some of which can cause serious loss of profits or even
bankruptcy. The main types of risk to consider are:
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Strategic risk
Compliance risk Financial risk
Operational risk
Reputational risk
Other risks
Strategic risk
Its the risk that your companys strategy becomes less effective
and
due
market,
any
to
number of other large-scale changes. Strategic risks result directly from operating within a
specific industry at a specific time. So shifts in consumer preferences or emerging
technologies that make your product-line obsolete--eight-track, anyone--or other drastic
market forces can put your company in danger. To counteract strategic risks, youll need to
put measures in place to constantly solicit feedback so changes will be detected early.
Compliance risk
Risks associated with compliance are those subject to legislative or
bureaucratic rule and regulations, or those associated with best practices
for
like
money.
That is, which customers do you extend credit to and for how long?
What is
your debt load? Does most of your income come from one or two
clients
who might not be able to pay? Financial risks also take into account
interest
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internal
risks.
Operational risks can also result from unforeseen external events such as transportation
systems breaking down, or a supplier failing to deliver goods.
Reputational risk
There are many different kinds of business, but they all have one thing in common: no
matter which industry youre in, your reputation is everything.
Loss of
product
build
but can be lost in a day. In this era of social networking, a negative Twitter posting by a
customer can reduce earnings overnight. According to Matt McGee, a search engine
optimization consultant, One negative blog post or product review can spread online in a
flash and change the direction of a company.
Other risk
Other risks are more difficult to categorize. They include risks from the environment, such as
natural disasters. Difficulties in maintaining a trained staff that has up-to-date skills to
operate your business is sometimes called employee risk management. Health and safety
risks not covered by OSHA or state agencies fall into this category as do political and
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economic instability in countries you import from or export to. Other risks include:
environmental risks, including natural disasters, employee risk management, such as
maintaining sufficient staff numbers and cover, employee safety and up-to-date skills,
political and economic instability in any foreign markets you export goods to, health and
safety risks and commercial risks including the failure of key suppliers or customers.
Strategic risk
Strategic risks can be defined as the uncertainties and untapped opportunities embedded in
your strategic intent and how well they are executed. As such, they are key matters for the
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performance of the organization. This includes a range of variables such as the market,
corporate governance and stakeholders. The market is highly variable and can change at
relatively short notice, as can the economic characteristics of the country or countries in
which a given organization is operating The corporate governance risk of the organization
includes risk relating to the reputation of the organization and the ethics with which it
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operates. Examples include the reputation of the organization and its desire to maintain that
reputation, perhaps at the expense of innovation or new developments. Stakeholder risk
includes the risk associated with the shareholders, business partners, customers and
suppliers. Shareholder attitudes can change quickly if dividends fall.
Some typical examples of strategic risks are listed below.
1. The strategic plan might be incorrect.
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3. The original strategic plan may have been correct but external changes may have compromised it.
The plan might not actually represent where the organization really wants to go Strategic
risks are typically external or affect the most senior management decisions. As such, they
are often missed from many risk registers. Board has a responsibility to make sure all these
types of risks are included in their key strategic discussions.
Strategic risks are those that arise from fundamental decisions that directors take
concerning
relatively long periods of time. Many small- to medium-sized change projects are designed
and implemented within a relatively short timescale. They are unlikely to be affected by
long-term changes in the political or economic environment. Strategic risks also tend to be
more complex and difficult to model and assess than operational and change/project risk. It
is relatively simple to analyses attendance records for employees and from that make a
prediction on likely sickness and absenteeism rates through the course of a project. It is
much more difficult to assess the likelihood of occurrence of a significant change in the level
of competition that is characteristic of a given sector. This depends on a whole range of
complex and long-term variables that are very difficult to consider in a form that can be used
for modelling and extrapolation.
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of projects fail.
The risk that marketing and sales forecasts and metrics will fall short of expectations.
For example, the risk of new product development failure.
The risk of operations failures. For example, the risk that logistical problem will cause
orders to be canceled.
The risk of losing key talent to the competition.
The risk of an information security incident. Information security incidents can damage
reputation, cause compliance issues and result in the loss of intellectual property.
The risk that your products, services or corporate execution leads to legal liability
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issues.
The risk of non-compliance with regulations and law.
The risk of missing sustainability targets or non-compliance with environment laws and
regulations. Sustainability is increasingly important to reputation. It's a central theme
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According to facts and figures and different researches Strategic risk management is a CEO
and board-level priority. Two thirds (67%) of the surveyed companies say the CEO, board or
board risk committee has oversight when it comes to managing strategic risk. The survey
shows that the vast majority of companies (81%) are now explicitly and actively managing
strategic risks and the results were quite consistent across all regions and industries.
Whats more, many companies are taking a broader view that doesnt just focus on the risks
that might cause a particular strategy to fail, but on whatever key risks could affect a
companys long-term positioning and performance. Companies arent just increasing their
focus on managing strategic risks; they are changing how they do it. In fact, nearly all
respondents (94%) have changed their approach to strategic risk management over the past
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higher
in Asia/Pacific (96%). Perhaps the biggest change is that more companies are integrating
strategic risk analysis into their overall business strategy and planning processes. And their
efforts seem to be paying off. The survey results show that 61% of companies now believe
their risk management programs are performing at least reasonably well in supporting the
development and execution of business strategy. The numbers are lower in EMEA (51%) and
slightly higher in the Americas (67%) and Asia/ Pacific (63%). Thats not to say there isnt
significant room for improvement. According to the overall results, only 13% of companies
rate their risk management programs 5 out of 5 in terms of supporting the development and
execution of strategy, and 40% consider them inadequate. The results are significantly worse
in EMEA, where only 5% rate their risk management programs 5 out of 5 and 49% rate them
inadequate.
Strategic risks are often risks that organizations may have to take in order (certainly) to
expand and even to continue in the long term. For example, the risks connected with
developing a new product may be very significant the technology may be uncertain, and
the competition facing the organization may severely limit sales. However, the alternative
strategy may be to persist with products in mature markets, the sales of which are static and
ultimately likely to decline
An organization may accept other strategic risks in the short term, but take action to reduce
or eliminate those risks over a longer timeframe. Question 2 in the December 2007 exam
included a good example of this sort of risk, concerning fluctuations in the world supply of a
Page 15
key raw material used by a company in its production. In the scenario, as the problem was
global, the business appeared unable to avoid it, in the short term, by changing supplier.
However, by redesigning its production processes over the longer term, it could reduce or
eliminate its reliance on the material.
Ultimately, some risks should be avoided and some business opportunities should not be
accepted, either because the possible impacts are too great (threats to physical safety, for
example) or because the probability of success is so low that the returns offered are
insufficient to warrant taking the risk. Directors make what are known as go errors when
they unwisely pursue opportunities, risks materialize, and losses exceed returns.
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risks; some will be small. Some may occur and some may not. Each one that does occur will
affect the course of progression of the organization from A to B. The organizations strategy
to get from A to B is really the collective management of these numerous competing risks, as
shown in second Figure.
The
stand
risks
that
between
position A and
position B cannot be accurately determined. They may affect the achievement of the
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might
affect the feasibility of navigate between A and B. The net result is that the company growth
suffers deflections as it attempts to implement the strategy or stay on course. Some risks
have a greater impact than the strategy foresaw. Some have a lesser impact. The net result
is a general divergence or set from the desired course, as shown in third Figure below.
In addition, new
strategies may be
formed within the
organization.
These may serve to reinforce or deflect the original strategy.
In order to take account of these variations, most strategies allow a variance envelope. This
permits divergence up to a certain limit, after which a warning is sounded. The variance
envelope typically contracts as a function of time. As the company nears desired position B,
the allowable margin of error must diminish, as shown in forth Figure
Strategy
implementation
variance envelope
In forth Figure
the early shifts
Page 17
from course
are acceptable
as they remain within the overall limits of acceptability for the variance envelope. The later
divergences, in this case C3 and D, move outside the limits of acceptability.
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SSSSSSSSS
Our learning
There are collection of things which we learned during this kind of project the
first thing which is worth mentioning here that how to coordinate with others
and how much it is necessary for successfulness of any task, our collective
Page 18
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find
work
are
for all
of us in future.
Appendices
Websites
business.tutsplus.com/.../the-main-types-of-business-risk--cms-22693
www.rmahq.org/risk-management
catalog.flatworldknowledge.com/bookhub/1?e=baranoff-ch01_s04
www.munichre.com/en/ir/shareholder-information/.../risk-management
www.rmahq.org/risk-management
www.munichre.com/en/ir/shareholder-information/.../risk-management
https://www.gov.uk/government/publications/strategic-risk-management
www.pwc.com/gx/en/.../risk/.../sharpening-strategic-risk-management/
www.accaglobal.com/content/dam/acca/gb/graduates/risk.pdf
www.bath.ac.uk/management/research/pdf/2006-01.pdf
www.businessinsider.com/9-strategic-risks-
www.protiviti.com/en-us/.../pov/pov-analyzing-strategic-risks-protiviti.pdf
www.strategicrisks.com/
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www.stern.nyu.edu/~adamodar/pdfiles/papers/strategicrisk.pdf
www.conferenceboard.ca/networks/src/default.aspx
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