Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Risk identification


Published on

  • Be the first to comment

Risk identification

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