2. One of the management function that seeks
to essess and address the causes and effects
of uncertainty and risk on an organization.
To enable an organization to progress toward
its goal and objectives(mission) in the most
direct,efficient,and effective path.
Process of thinking systematically about all
possible risks, problems or disasters before
they happen and setting up procedures that
will avoid the risk, or minimize its impact, or
cope with its impact.
3. Should anticipate the risks that will hinder
the ultimate goal of them which is to attain
success in the world and here after.
Indicates how do Muslim reduce the risk of
loss and calamities
Aim to reduce the utilization of resourcess
(financial and non-financial) and to minimize
the negative effects of risks or maximize the
opportunities and goals.
The goal must be aligned with the syariah
4. To preserve the operating effectiveness of
the organization, to make sure that it is not
prevented from attaining its other goal by
pure risks or the losses arising from those
risks.
Equally important in the view of some-is the
humanitarian goal of protecting employees
from accidents that might result in death or
serious injury.
5. I. PRE LOSS
necessary before a loss actually takes place so
that the impact of the loss should it occur can
be minimized.
Necessary before a loss since it reduce fear
and worry.
necessary in some cases because is made
compulsory by law.
EXAMPLE : the government sets a regulation
that requires firms to install safety devices to
protect workers from harm such as wearing
safety helmets and eye-goggles are made
compulsory in the construction industry to
avoid injuries among workers.
6. II. POST LOSS
Ensures the survival of the organization even
after a loss has taken place – organization
must be able to continue its operation.
Ensures the stability of earnings – do not have
to stop and the organizations can concentrate
on their business activities as usual.
Reduce the overall impact of losses toward the
organization and the society – loss occur not
only will the organization suffer but the loss
has to be burned by society as well.
8. STEP 1 : INDENTIFYING EXISTING AND POTENTIAL RISKS
by which an organization is able to learn of
the areas in which it is exposed to risk.
Designed to develop information on sources
of risk, hazards,risk factors, perils, and
exposures to loss.
Ensure that all loss exposures are identified
is not an easy task.
9. Losses can be claasified as those that can
result in :
direct damage (damage to building)
Indirect damage (loss of profit due to
business interruption)
Liability (court award to third party since
fire was cause negligence of the owner of
building)
Loss of key employee (CEO dies or disable as
a result of fire)
10. Systematic approach to the problem of risk
identification :
Risk
identification
tools
orientation
Insurance
policy
checklist
questionnaires
11. Systematic approach to the problem of risk
identification :
Risk
identification
tools
flowcharts
Analysis of
financial
statement
Inspections
12. STEP 2 : EVALUATING POTENTIAL RISK
Evaluate them in terms of financial loss.
Measuring the severity (potential size of the loss) and
frequency (the probability that it is likely to occur).
Example : a supermarket entity that experiences high
frequency of losses .losses that fall in this category
would be shoplifthing of small items such as chocolate
bars or snacks.we very seldom hear of a supermarket
being close down because of that. – loss with high
severity.
13. STEP 3: EXAMINING ALTERNATIVE RISK MANAGEMENT
TECHNIQUES
POSSIBLE WAYS TO HANDLE IT.
-RISK AVOIDANCE
-LOSS CONTROL
(LOSS
PREVENTTION ,
LOSS REDUCTION)
-SEPARATION
-CONTRACTUAL
TRANSFER
RISK
CONTROL
(NON-
FINANCIAL)
-retentaion
-captive insurer
-insurance
RISK
FINANCING
14. Focuses on minimizing the risk of loss to which
the entity is exposed, and includes the
techniques of risk avoidance and risk
reduction.
Risk control
15. Risk control
Risk avoidance :
By not engaging in that particular hazardous
activity or operation.
Manufacturer can avoid the risk of liability
associated with hazardous products by
picking another product line.
16. Risk control
Loss control :
Avoidance designed to reduce the frequency,
severity, or unpredictability of losses.
Two perspective :
*loss prevention (reduce frequency)- example,
employees wear and use all the time any
protective equipment or clothing provided.
*loss reduction (reduce severity before and
after loss) - example, seat belts and air bags are
designed to minimize the amount of damage at
the time an accident occurs.
17. Separation :
Reduce the impact of losses.
Example , location of each building must be
properly planned so as to minimize losses in
the case of event such as fire.
The separation of warehouse from operation
section in a factory.
18. Contractual transfer :
Incorporation- where the owner transfer the risk
to corporation by registering the company.
Leasing contract- an agreement where the owner
or landlord transfer the risks to the tenants.
Hedging- an agreement to buy or sell a
commodity at a certain price to avoid losses due
to price increase or decrease.
Hold-harmless agreement- agreement between a
retailer and a manufacturer whereby the later
agrees to bear losses due to the manufacturer of
defective products thus relieving of any liability.
19. Contractual transfer :
advantages disadvantages
The potential loss that are
uninsurable can be transfer
to the third party.
The firm still have to
responible in the case of
third party refuse to pay.
Normally the cost is less
than insurance
Not necesserily cheaper
than insurance if discount
are taken into
consideration.
Potential loss shifted to a
party who is in better
position to exercise
control.
Ambiguity in contract may
not hold in court.
20. Risk financing
Retention :
The company will bear the consequences of
the loss.
To pay for losses it incurs.
Less expensive than purchasing insurance
because many frictional costs (administrative
costs of purchasing insurance, commission to
insurance sales people, premium taxes,
insurer profit)
21. Self insurance and captive insurers :
Self insurance is one of the oldest
alternatives and remains one of the most
popular.
Rather than purchase an insurance policy , a
company will elect to retain an eligible risk
while designating an amount of money
calculated to compensate for the potential
future loss.
22. A capture insureris , in general term, a
licensed insurance company established by a
non-insurance parent company to insure the
risks of the parent company.
Example, maybank group is the parent
company of maybank assurance sdn.bhd .
23. Advantages of a captive Disadvantages of a captive
Reduced insurance costs Capital commitments
Protected cash flow Risk of adverse results
Source of additional revenue Operating cost
Coverage for risks Time commitment
Reduced need for commercial
insurance
-
Flexibility in program design -
24. Insurance :
Financing method of transferring the
financial consequences of potential
accidental from an insured firm or family to
an insurer.
Use when the organization feels that it is
more economical and beneficial to transfer
the risk to another party.
25. STEP 4 : SELECTION AND IMPLEMENTATION OF
THE RISK MANAGEMENT PROCESS
Draw up and implement the risk management
program
Based on 2 factors :
*financial criteria – affect the organization’s
profitability or rate of return.
*non-financial criteria- affects the growth of
the organization, humanitarian aspects and
legal requirements.
26. Risk matrix :::::
Type of risk High frequency Low frequency
High severity Risk avoidance
and reduction
Risk transfer (ex
;insurance)
Low severity Risk retention
and reduction
Risk retention
27. STEP 5 : EVALUATION,REVIEW AND CONTROL
Must be monitored and controlled
systematically.
Periodically reviewid to ensure that the
techniques employed are still suitable and
they satisfy the current conditions.
To review decisions and discover mistakes, it
is hoped, before they become costly.
