RISK MANAGEMENT - A BALANCING ACT Pillai Sreejith
Risk  (Science)  & Management  (Art) <ul><li>Investigation & understanding the broad range of risks in relation to the org...
RISKS- A Fact File <ul><li>The word,  Risk  has been derived from the Latin word, ‘Risicare’, which means ‘ dare ’ </li></...
RISK  is a difficult concept to define!!!! And interestingly, (Risk is generally perceived with negative effects but it al...
Types of Risks <ul><li>Financial Risks </li></ul><ul><li>Operational Risks </li></ul><ul><li>Physical Risks </li></ul><ul>...
RM  Scenario in India <ul><li>Still in its infancy </li></ul><ul><li>Mostly practiced in the  Financial  &  Insurance  sec...
CASE STUDY “ The Interdependence Between  Insurance  &  Loss Prevention ”
The Investment Project <ul><li>A company invested  300,000  Pounds in setting up a manufacturing plant </li></ul><ul><li>T...
Case Study Approach <ul><li>An overly simplistic approach adopted </li></ul><ul><li>Objective of this case study </li></ul...
Appraisal of Project-  Risk Management  Considerations
Conclusion <ul><ul><li>In evaluating investment projects, companies mostly omit risk management considerations </li></ul><...
Insurance  &  Risk Management <ul><li>Insurance could be part of a comprehensive RM ( Risk Financing)  plan </li></ul><ul>...
RISK MANAGEMENT is not GAMBLING !!! Making  Risk Management  Decisions  Without Reasonable or Prudent Assessment  could le...
“ Retention of Risk is Business” RISK RETENTION/ TRASFER IS FINALLY A TOP MANAGEMENT JUDGEMENT
CONVERTING  THREAT  INTO  OPPORTUNITY  !! “ Consider identified risks as  opportunities to improve   & not as threats”
Aftermath of a  ‘Bush Fire’  in California “ Managing Risks  Better Than their Neighbors” Ice Plants
Ideal  Risk Management <ul><li>Holistic </li></ul><ul><li>Dynamic (Pro-Active) </li></ul><ul><li>Balanced Cost & Benefit <...
More on Risks……. <ul><li>“Risks reduce the value of a firm to its shareholders. Whether a firm bears a risk or transfers i...
Courtesy:  The pictures used in the presentation are from various web sites. <ul><li>LOSS  PREVENTION </li></ul><ul><li>CO...
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Risk Management A Balancing Act

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Risk Management A Balancing Act

  1. 1. RISK MANAGEMENT - A BALANCING ACT Pillai Sreejith
  2. 2. Risk (Science) & Management (Art) <ul><li>Investigation & understanding the broad range of risks in relation to the organization's objective </li></ul><ul><li>Development of the ability to communicate, articulate and manage the identified risks </li></ul>“ Today’s total Risk Manager is the person who can combine art with science to master the challenges & opportunities of a fast-changing world”
  3. 3. RISKS- A Fact File <ul><li>The word, Risk has been derived from the Latin word, ‘Risicare’, which means ‘ dare ’ </li></ul><ul><li>The lexicon defines Risk as threat or vulnerability </li></ul><ul><li>Risk Management (RM) emerged basically as a financial discipline </li></ul><ul><li>RM is popular analytical method for optimizing insurance coverage </li></ul><ul><li>RM is globally 50 years old </li></ul>
  4. 4. RISK is a difficult concept to define!!!! And interestingly, (Risk is generally perceived with negative effects but it also signifies opportunity & growth )
  5. 5. Types of Risks <ul><li>Financial Risks </li></ul><ul><li>Operational Risks </li></ul><ul><li>Physical Risks </li></ul><ul><li>Strategic Risks </li></ul><ul><li>Reputation Risks </li></ul><ul><li>Business Risks </li></ul>
  6. 6. RM Scenario in India <ul><li>Still in its infancy </li></ul><ul><li>Mostly practiced in the Financial & Insurance sectors </li></ul><ul><li>BCP ( Business Continuity Planning ) is gaining importance </li></ul>
  7. 7. CASE STUDY “ The Interdependence Between Insurance & Loss Prevention ”
  8. 8. The Investment Project <ul><li>A company invested 300,000 Pounds in setting up a manufacturing plant </li></ul><ul><li>The management estimated net cash flow of 90,000 Pounds & 12% net return per annum </li></ul><ul><li>To compensate for the dynamic business risks associated with the project, the company decided that it must earn at least 12% net on the capital invested </li></ul>
  9. 9. Case Study Approach <ul><li>An overly simplistic approach adopted </li></ul><ul><li>Objective of this case study </li></ul><ul><li>“How Investment Decisions can be affected by Risk Management considerations” </li></ul><ul><li>Factors not considered </li></ul><ul><ul><li>Risk Transfer Methods </li></ul></ul><ul><ul><li>Deductibles </li></ul></ul><ul><ul><li>Premium Discounts </li></ul></ul><ul><ul><li>Business Interruption Losses (LOP) </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul>
  10. 10. Appraisal of Project- Risk Management Considerations
  11. 11. Conclusion <ul><ul><li>In evaluating investment projects, companies mostly omit risk management considerations </li></ul></ul><ul><ul><li>If the company is ‘risk averse’ , it would probably would not be prepared to accept the degree of variability in its annual results as shown in case 1 </li></ul></ul>
  12. 12. Insurance & Risk Management <ul><li>Insurance could be part of a comprehensive RM ( Risk Financing) plan </li></ul><ul><li>A good risk means a healthy bottomline to both the insured and the insurer </li></ul><ul><li>It is logical that the insurer promote loss control programme for insured as part of their BCP (Business Continuity Plan) </li></ul>“ For every 1 rupee insurance, there is 8 rupee non-insured losses”
  13. 13. RISK MANAGEMENT is not GAMBLING !!! Making Risk Management Decisions Without Reasonable or Prudent Assessment could lead to business failure!!
  14. 14. “ Retention of Risk is Business” RISK RETENTION/ TRASFER IS FINALLY A TOP MANAGEMENT JUDGEMENT
  15. 15. CONVERTING THREAT INTO OPPORTUNITY !! “ Consider identified risks as opportunities to improve & not as threats”
  16. 16. Aftermath of a ‘Bush Fire’ in California “ Managing Risks Better Than their Neighbors” Ice Plants
  17. 17. Ideal Risk Management <ul><li>Holistic </li></ul><ul><li>Dynamic (Pro-Active) </li></ul><ul><li>Balanced Cost & Benefit </li></ul>
  18. 18. More on Risks……. <ul><li>“Risks reduce the value of a firm to its shareholders. Whether a firm bears a risk or transfers it, risk has a cost, and a firm’s risk management effort is being judged by its ability to manage capital efficiently” </li></ul>
  19. 19. Courtesy: The pictures used in the presentation are from various web sites. <ul><li>LOSS PREVENTION </li></ul><ul><li>COST </li></ul><ul><li>INSURANCE </li></ul><ul><li>BENEFIT </li></ul>

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