• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Corporate Risk Management
 

Corporate Risk Management

on

  • 5,300 views

 

Statistics

Views

Total Views
5,300
Views on SlideShare
5,284
Embed Views
16

Actions

Likes
5
Downloads
165
Comments
3

2 Embeds 16

http://www.slideshare.net 14
http://webcache.googleusercontent.com 2

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel

13 of 3 previous next Post a comment

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
  • anamhabib83@yahoo.com
    Are you sure you want to
    Your message goes here
    Processing…
  • please help me,
    anyone has assignment about corporate risk management send to me i need it for gradute
    Are you sure you want to
    Your message goes here
    Processing…
  • a good file on risk but focuses only on negative risks (threats)... hope there's another file about positive risks...
    thank you
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Corporate Risk Management Corporate Risk Management Presentation Transcript

    • Introduction to Concepts of Corporate Risk Management By Shravan Bhumkar (KH08JUNMBA100) Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • What is Risk ? • “Risk is an event or injury that can cause damage to an institution`s income and/or reputation”. • “It is like energy that can not be crated nor destroyed but only can be passed on or managed”. • “There is direct relationship between risk and reward and the quest for profit maximization has given rise to accelerated risk taking for enhanced rewards”. • “Whatever be the type of risk, impact is primarily financial. Ultimately risk manifest in the form of loss of income and reputation”. Source : “Theory and practice of treasury and risk management in banks”- IIBF Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • What is Risk ? • Risk is part of any business`s lexicon and understanding and subsequently managing it is the most important concern. • The risk is inherent in the business. • Given the importance of risk management, it is no wonder that it is today receiving scrutiny from the world`s top most organizations, banks, financial institutions, regulators , governments and so on. • Organizations and institutions put tangible assets (such as funds, technology, processes and people) and intangible assets (such as reputation, brand and information) at risk to achieve their objective. • Whether the organizations are for profit or not for profit the task of management is to manage these risks in the uncertain environment. Source : “Theory and practice of treasury and risk management in banks”- IIBF Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Organizational management has thus become synonymous with risk management Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Sources of risk • Interest rate risk Interest rate risk is the risk of an adverse effect of interest rate movements on a firm`s profit or balance sheet. Interest rates affect a firm in two ways by affecting the profits and by affecting the value of its assets or liabilities. • Exchange risk Exchange risk is a possibility of adverse effect on the value of firm`s assets, liabilities or income, as a result of exchange rate movements. • Default risk It is the risk of non-recovery of sums due to from outsiders, which may arise either due to their inability to pay or un-willingness to do so. • Liquidity risk Liquidity risk refers to the risk of possible bankruptcy arising due to the inability of firm to meet its financial obligations. Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Sources of risk • Business risk It is the risk faced by business from its external and internal environment. Internal factors like labour strike, death of key personnel, machinery break-down etc. External factors like government policy, changes in customer preference etc • Financial risk It refers to bankruptcy arising from possibility of firm not being able to repay its debts on time. Higher the debt-equity ratio of firm, higher the financial risk faced by it. Liquidity risk and wrong capital structure are the prime reasons for financial risk . • Market risk It is the risk of value of a firm`s investments going down as a result of market movements. It also referred as price risk. • Marketability risk This is the risk of the assets of a firm not being readily marketable. Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • The changing form of risk • We all know is risk is associated with every business activity. In a repressed financial system risk is not apparent. • The earlier ethos inspect/detect/react have been substituted with new concepts like anticipate/prevent/monitor/mitigate. Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Risk management process I. Determining objectives • It is a first step, may be profits, or to develop competitive advantage. • It is to be decided by management. II. Identifying risks • Each corporate needs to identify the possible sources of risk and the kinds of risk faced by it . III. Risk evaluation • Once the risk is identified, they need to be evaluated for ascertaining their significance. • The significance depend upon the size of loss that it result in, and the probability of the occurrence of such loss. Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Risk management process IV. Development of policy • Based on tolerance level of the firm, the risk management policy needs to developed. • The time frame of policy should be comparatively long, so that the policy is relatively stable. V. Development of strategy • The tenure of a strategy is shorter than policy it needs to factor in various parameters that keep changing. • A strategy is essentially an action plan, which specifies the tools, techniques and instruments that can be used to manage these risks. • For example Derivatives Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Risk management process VI. Implementation • This is the operational part of risk management • It is finding the best deal in case of risk transfer, providing for contingencies in case risk retention, designing and implementing risk control programs, etc. VII. Review • The function of risk management needs to be reviewed periodically. • Monitor effectiveness of the decision taken previously. Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Risk management techniques Two kinds of techniques used for management of various categories of risk 1. Internal techniques are those that are a part of the day-to-day operations of the firm. 2. External risk are those that require the company enter into some kind of financial contract with a market entity Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Risk management techniques • Management of business risk Some of business risks are not manageable, i.e. they have to be borne Operational risks can be managed by building flexibility into operations • Asset-liability management Marshall & Bansal describes ALM as “ an effort to minimize exposure to price risk by holding the appropriate combination of assets and liabilities so as to meet the firm`s objective and simultaneously minimizing the firm`s risk” To manage interest rate risk and exchange risk Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Guidelines for risk management • Common goal of risk management and financial management • To create shareholder wealth • To generate Net present value • Proper mix of risk management techniques • No risk management is fool proof or complete in itself • Employs most optimum mix of risk control, risk prevention, risk transfer and risk retention • Proactive risk management • Number of uncertainties involved in financial markets • Continuous changes in interest rate, exchange rates, commodity prices, economic variables and external environment is a reality • Risk management cannot be done after the happening of an event, it has to be done in its anticipation. Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Guidelines for risk management • Flexibility • Risk management strategies should not be too rigid • They should be flexible enough to allow risk manager to make most appropriate decision in according to the circumstances • Bringing risk to the optimal level • The maintenance of risk at the level of optimal (The risk bearing capacity of the firm) • Firm should not be exposed to risks which may results in its liquidation • Risk substitution • In general, risk management techniques do not eliminate the risk completely but substitute it by another kind of risk Source : A book on “Strategic financial management” by ICFAI University Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar
    • Thank you. Financial & Cost Accounting Batch- XIII (B) Prof. Hardic Mehta Shravan Bhumkar