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Risk identification

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Risk identification

  1. 1. SEMINAR TOPIC 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>

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