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1.
2. Introduction to Risk Management
• A systematic process for:
- the identification and evaluation of pure loss
exposures faced by an organization or individual
- and for the selection and administration of the most
appropriate technique for treating such exposures.
3.
4. Risk Management- Macro
• Provision of adequate infrastructure, trained
personnel and capability to mitigate huge losses due
to disasters natural & man made will be the main
area for macro analysis by the Government.
• Natural disasters result in huge devastation and loss
of human lives.
• Bhopal tragedy had put India in Guinness book of
world records as one of the big tragedies of the
world
5. Principles of risk management
The International Organization for Standardization (ISO)
identifies the following principles of risk management:
Risk management should:
• create value - resources expended to mitigate risk should
generally exceed the consequence of inaction, or (as in
value engineering), the gain should exceed the pain.
• be an integral part of organizational processes
• be part of decision making
• explicitly address uncertainty and assumptions
6. • be systematic and structured
• be based on the best available information
• be tailor able
• take into account human factors
• be transparent and inclusive
• be dynamic, iterative and responsive to change
• be capable of continual improvement and enhancement
• be continually or periodically re-assessed
7. Objectives of Risk Management
• A risk management policy statement offers several
advantages.
• Such a policy statement is necessary in order to have
effective administration of the risk management
program.
• The policy statement states the risk management
objectives of the firm and company policy with
respect to treatment of the loss exposures.
8. • In addition, a risk management statement has the
advantage of educating top-level executives in the
firm about the risk management process.
• Also, the written policy statement enables the risk
manager to have greater authority throughout the
firm.
the policy statement provides a standard for judging
the risk manager's performance.
9. Pre-loss Objectives:
Objectives before a loss occurs
Economy goal:
The firm should prepare for potential losses in the most
economical way. This preparation involves an analysis of the
cost of safety programs insurance premiums paid, and the
costs associated with the different techniques for handling
losses.
Reduction of anxiety:
Certain loss exposures can cause greater worry and fear for the
risk manager and key executives.
E.g. The Threat of a catastrophic lawsuit from a defective
product can cause greater anxiety than a small loss from a
minor fire.
10. Meet any legal obligations:
E.g. Government regulations may require a firm to install
safety devices to protect workers from harm, to dispose
of hazardous waste materials properly, ant to label
consumer products appropriately.
The risk manager must see that these legal obligations are
met.
11. Post-loss Objectives
Objectives after a loss occurs
Survival of the firm:
After a loss occurs, the firm can resume at least partial
operations within some reasonable time period.
Continued operation:
For some firms , the ability to operate after a loss is
extremely Important. otherwise business will be lost to
competitors.
e.g. Public utility firms must continue to provide services.
12. Stability of earnings:
Earnings per share can be maintained if the firm
continues to operate. Otherwise, a firm may incur
substantial additional expenses to achieve the goal , and
perfect stability of earnings may not be attained.
Continued growth:
A company can grow by developing new products and
markets or by acquiring or merging with other
companies. The risk manager must consider the effect
that a loss will have on the firm’s ability to grow.
13. Social responsibility :
This objectives is to minimize the effect that a loss will
have on other persons and on society. A severe loss can
adversely affect employees, suppliers, creditors, and the
community .