Risk Management - a conceptual framework-B.V.Raghunanadan

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deals with the concept of risk and the need and process of risk management

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Risk Management - a conceptual framework-B.V.Raghunanadan

  1. 1. Risk Management: A Conceptual Framework<br />B.V.Raghunandan,<br />SVS College,<br />Bantwal-Karnataka-India<br />
  2. 2. Meaning of Risk<br />Risk is defined as possibility of loss<br />Lico Reis, ”Degree of uncertainty of return on an asset”<br />Investopedia (www.invetopedia.com), ”The chance that an investment's actual return will be different than expected”.<br />
  3. 3. Classification of Risks<br />
  4. 4. A] Pure Risk<br />It is a risk where there is no possibility of profit<br />There is the expense in the form of insurance premium<br />There is a loss when the compensation paid by insurance company is less than the actual loss<br />It is a method of dividing the risk among those exposed to a particular type of risk<br />
  5. 5. B] Speculative Risk<br />Speculative risk not only attempts to compensate for the loss, but may also bring in a profit<br />Financial risk management tools may bring in profit apart from covering the risk<br />
  6. 6. A] Pure Risk Management<br />Life Insurance and General Insurance<br />Life Insurance Principles: Utmost Good faith, and Insurable Interest<br />General Insurance Principles:<br /> - Utmost Goodfaith<br /> -Insurable Interest<br /> -Indemnity<br /> -Subrogation<br /> -Contribution<br />
  7. 7. Types of Pure Risks<br />Risks relating to physical assets<br />Risks relating to human assets<br />Risks relating to liability<br />
  8. 8. B] Speculative Risks<br />Business Risk<br />Default Risk<br />Market Risk<br />Liquidity Risk<br />Credit Risk<br />Exchange Risk<br />Financial Risk<br />External Environment Risk<br />Environment Risk<br />Attrition Risk<br />Manufacturing Risk<br />Risk of Natural Calamity<br />
  9. 9. Handling the Risk<br />Risk Management<br />Risk Retention<br />
  10. 10. Risk Management: Action<br />Risk Avoidance<br />Diversification<br />Spin-off<br />Risk Transfer<br />Risk Sharing<br />Fighting Fire with Fire<br />
  11. 11. Risk Retention: Acceptance<br />Rationale:<br /> 1. When it can not be avoided<br /> 2. High cost of management of risk<br /> 3. Risk management may increase loss<br /> 4. Where control is difficult<br /> 5. Where risk management is too complex <br />
  12. 12. Risk Management Process: Steps Involved<br />Identification of Objectives: competition, stability in earnings, meeting customer expectation, treasury management, cost control, protecting foreign markets<br />Identification of Risks<br />Evaluation of Risk<br />Selection of Policy<br />Developing Strategy<br />Organisational Authority<br />Organisational Control & Corrective Action <br />
  13. 13. THANK YOU<br />

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