DEPLOYING RISK MANAGEMENT IN

SME MANAGEMENT

Sikiru SALAMI ACA, ACSI

ICANPROFESSIONAL YAHOOGROUP
Entrepreneurship Seminar

OPENING QUOTE:

CASE STUDIES ON RISK

MGT FAILURES
And the struggling pharmaceutical SME failed
How a fledgling Audit Firm put its owners in BIG
TROUBLE

Why Small Businesses Crumble So Soon

What is it about
RISK?
Risk as a cause e.g. fire, theft, fraud
Risk as a likelihood probability of occurrence
Risk as an object the objects that constitute the risk, e.g.,

factory, aircraft, ship, young male drivers

Risk as an action taking a risk by doing something or not

doing something

Risk is a condition in which there is a possibility of an

adverse deviation from a desired outcome that is expected

Risk is all pervasive of all human endeavour

SCARED OF RISK?

RISKS FACING SMALL BUSINESSES

TYPES OF RISK
Credit Risk: The risk of loss arising from loan default or unpaid

account receivables
Operational Risk: The risk of loss resulting from inadequate
or failed policy, processes and systems or from external
events
Market Risk: The risk of loss resulting from adverse movements in
the market prices, interest rate, equities, commodities, or
currencies.
Liquidity Risk: The risk of loss to an entity arising from its inability
to meet its obligations as they fall due.
Legal Risk: The risk of loss arising from inability to enforce a
contract against a counterparty, or unfavourable legal proceedings.
Compliance Risk: The Risk of loss arising from breach of
regulatory requirements
Strategic Risk, Reputational Risk etc.

TYPES OF RISK (contd)

ERM is a process, effected by an entitys board of

directors, management and other personnel, applied in

strategy setting and across the enterprise, designed to
identify potential events that may affect the entity, and
manage risk to be within its risk appetite, to provide
reasonable assurance regarding the achievement of
entity objectives.
Source: COSO Enterprise Risk Management Integrated Framework. 2004. COSO.

Enterprise Risk Management (ERM)

ERM deals with risks and opportunities affecting value creation or

COMPONENTS OF ERM FRAMEWORK

Benefits of ERM Implementation

Aligning risk appetite and strategy
Enhancing risk response decisions
Reducing operational surprises and losses
Improving overall risk rating
Improving deployment of capital
Complying with regulatory changes
Improving shareholder value
Facilitating long term survival

Risk Assessment Process

Identify relevant business objectives.
Identify events that could affect the achievement of

objectives.
Determine risk tolerance.
Assess inherent likelihood and impact of risks.
Evaluate the portfolio of risks and determine risk

responses.
Assess residual likelihood and impact of risks.

Risk Assessment (Contd)

Risks are analyzed, considering likelihood and impact,

as a basis for determining how they should be

managed
Risks are assessed on an inherent and a residual
basis.
RISK MAP
5
4
3
2
1
LIKELIHOOD

LOW
LOW
LOW
LOW
LOW
1

MED
MED
MED
LOW
LOW
2

HIGH
HIGH
MED
MED
LOW
3

EXT
HIGH
HIGH
MED
LOW
4

EXT
EXT
HIGH
MED
LOW
5

CONSEQUENCE
Risk = (Probability of event occurring) X (impact of event occurring)

LxC
Score 0 - 5
Score 6 - 10
Score 12 - 16
Score 20 - 25

=
=
=
=

Low
Medium
High
Extreme

Risk Response Actions

Accept = monitor

or
Avoid = eliminate (get out of the situation)
Mitigate = institute controls
Share = partner with someone (e.g. insurance)
Residual risk (unmitigated risk)

Business Continuity Planning (BCP)

BCP is a roadmap for continuing operations

under adverse conditions such as fire incident,

server crash etc.
Important
documents
should
be
duly
protected with a back up facility and kept in
an offsite facility.

KSF for an Effective ERM Implementation

Implementation
Challenges

Concluding Quote
For firms to succeed in this increasingly global
and competitive marketplace, risk management
must become a state of mind. A systematic and
proactive enterprise-wide approach to managing
risks is essential to making risk management an
integral part of the companys DNA
-NURAG SAKSENA CRO, Freddie Mac
There are risks and costs to a programme of
action; but they are far less than the long
range risks and costs of comfortable
inaction
-John F. Kennedy