Risk identification
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Risk identification






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Risk identification Risk identification Presentation Transcript

    • Risk is the combination of likelihood and consequence of a hazard being realised .
    • Risk identification provides the foundation for risk management. The various methods of risk identification are:
    • Preparing checklist of risk or various losses which may arise due to risks.
    • On-site inspections and risk assessment.
    • Financial statement analysis.
    • Flow chart preparation and identification of risky activities.
    • Interaction with employees for their views about risk exposures of business based on their knowledge and experience.
    • Statistical records of occurrence of losses related to various categories of risks.
  • Sources for identifying risks
    • Sources of risk are all of those company environments, whether internal or external,
    • that can generate threats of losses or obstacles for achieving the company’s objectives.
    • A procedure that facilitates the identification of risks is to ask oneself, with respect to
    • each of the sources, whether weaknesses or threats exist in each case.
  • Identification of Risk Exposures
    • 1. Physical Asset Exposures
      • tangible assets such as warehouses and intangible assets such as political support are exposed to risk
      • damage of the assets
      • cause the firm cannot use the assets for some time
      • money loss
  • Identification of Risk Exposures - con’t(1)
    • 2. Financial Asset Exposures
      • creditors have their financial assets such as bonds exposed to risk (e.g., interest rate risk and exchange risk)
      • the issue of shares or bonds will transfer part of the financial risk from issuer to 3rd party (investors), but the issuer have certain obligations (e.g., repay the loans)
  • Identification of Risk Exposures - con’t(2)
    • 3. Liability Exposures
      • existence of the legal system/contracts
      • a firm has to act in accordance with the terms of the contract it entered, otherwise it will suffer a loss
      • different from asset exposures
      • liability exposure is only a pure risk
  • Identification of Risk Exposures - con’t(3)
    • 4. Human Asset Exposures
      • human resources is an asset
      • the injury or death of employees will affect the management of HR and also the internal operation of a firm
  • Risk Identification Methodologies
    • Traditional approach : observe those past events that caused losses, and then find out measures to prevent their occurrence
    • Modern approach : identify the possibility of losses or reasons for the occurrence of the losses before the losses actually occur
  • Risk Identification Tools
    • Risk analysis questionnaire and items preview
    • design a list of systematic and analytical questions that can identify the existence of risks
    • separate those risks that can be insured from those that cannot be insured
    • nature of the risk and source of information can be obtained by documents processing, interview and observation
  • Risk Identification Tools - con’t(2)
    • 1. The Financial Statement Method
      • reflect the firm’s real assets, liability, financial budget, etc
      • risk managers can assess the risk by assessing the firm’s financial situation
    • 2. The Flow-Chart Method
      • investigating the firm’s businesses and its internal operation
      • assess the firm bears what type of risk
      • looking at the flowcharts and using risk analysis questionnaire
  • Risk Identification Tools - con’t(3)
    • 3. On-Site Inspections
      • by observing the firm’s facilities and operation directly
    • 4. Interactions with other Departments
      • the risk manager keeps continuous contact with the managers from other dept.
      • obtain information about the source of risk in other dept.
    • 5. Contract Analysis
      • looking at the contracts the firm entered into
      • assess the firm’s obligation and liability
  • Risk Identification Tools - con’t(4)
    • 6. Statistical Records of Losses
      • looking at the records of losses
      • find out the reasons for the occurrence of the loss, the nature of the risk, the degree to which the firm is being affected, etc
    • 7. Incident Reports
      • report daily losses and casualties
      • obtain information about the whole events that caused the losses