The document discusses the evolving landscape of risk management, emphasizing the importance of holistic approaches beyond just financial risks. It highlights the need for organizations to incorporate operational, strategic, and hazard risks to foster better governance and synergy across departments. A comprehensive view of risk management is essential for firms to avoid potential crises and leverage opportunities for growth.

1. PUREVALUE FINANCIAL & RESEARCH SOLUTIONS PVT. LTD.
2014
Risk Management
New vision, innovative research
PureValue Research Team
W W W . P V A L U E R E S E A R C H . C O M

2. Risk Management
Focus: Are we waiting for a new disaster to swallow all of our generated wealth
or we are not sufficiently informed about all the facets of the risk management.
As Peter Drucker says:
“A business has to try to minimize risks. But if its behavior is governed by the
attempt to escape risk, it will end up by taking the greatest and least rational risk
of all: the risk of doing nothing”.
From last several decades corporate trend is to focus on corporate governance
whereas, risk governance is perceived and inclined towards the financial risk
management of the organizations. Events in the recent past in case of LTCM,
Barings, Metallgeselschaft, Satyam, P&G etc. taught us strict lessons of improper
risk management practices. Companies have now started realizing that it is only
partial and biased view towards the risk management.
There are two angles to look at risk management. First, risk management has
other unexplored dimensions like operational, strategic and hazard risks. Second
angle points out that, risk is not only a negative outcome of an unwanted or
unexpected event, but also, an indication of potential benefit at the cost of risk.
How much proportion anyone wants to distribute between risk and opportunity is
the need and taste of decision makers and art of the risk manager.
Earlier, much of the focus of risk management has been on financial risk
management only by managing fluctuations in financial parameters like interest
rates, exchange rates, inflation etc. Risk managers worldwide are now shifting
gears to practice risk management in synchronized and holistic way which is
termed as Enterprise Risk Management. In many organizations the purchase,
treasury, HR, legal and finance departments handles risks independently at the
department level, which is not an appropriate way. An organization-wide view of
risk management may tremendously raise the efficiency to peak level and
generate synergies among the departments.

3. Risk Management
Task of the risk manager is to classify and interpret relevant risk measures as per
the need of the organization since it is not possible to list the full gamut of
potential risks. Moreover, one template of risk classification cannot generalize risk
management for all organizations.
If we consider BASEL II framework for non-financial firms, it distributes risk into
three categories:
a. Operational risk (business risks, IT, business operations)
b. Financial risk ( Interest rate, exchange rate, inflation, counterparty,
insolvency)
c. Market based risk.
Other risks which may be considered but not specified in BASEL II are Strategic
risks (reputational, political, demographic) and Hazard risks (diseases, fire, theft,
crime). So we can say that there is no exhaustive list of all the potential risks for
organizations and it is only tailor made structure which is efficient.
Conclusion: Organizations sitting on the assumptions of risk management to be of
only financial nature and treating them in piecemeal fashion are prone to risks of
crisis in the long run. Holistic approach of risk is the need of latest and future
generation of firms. Sooner or later they would be embracing firm-wide
perspective of the risk management. Risk management will take new leaps and
bounds in the coming future by treating risk management as one of the essential
arm of any successful organization.
Thanks & Regards
PureValue Research Team
www.pvalueresearch.com