Rm 05


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Rm 05

  1. 1. Risk ManagementUniversity of Economics, Kraków, 2012 Tomasz Aleksandrowicz
  2. 2. Risk TreatmentRisk monitoring & reporting Ryanair case study
  3. 3. Processof RM
  4. 4. risk treatment (risk mitigation)• selecting and implementing response to risks• in line with organizations risk approach and risk appetite• decisions as to whether particular risks should be avoided, reduced, shared (transferred) or accepted
  5. 5. risk treatment common methods• avoidance• reduction – internal control• sharing (transfer) – insurance – portfolio diversification – hedging – outsourcing• acceptance• other less common methods
  6. 6. risk avoidance• hold back or exit risk related activities• in terms of product, geographical region, customer segment, etc.• simple and commonly used method
  7. 7. risk reduction• based on prioritization of risks by risk matrix• activities to reduce: – likelihood (probability) of a risk – severity (consequences) of a risk – both aspects• costs and benefits taken into consideration• implemented mostly by internal control• could be performed by risk function (run by CRO), internal audit or compliance
  8. 8. risk reduction – internal control• system established to provide reasonable assurance of effective and efficient operation• internal controls: – financial (e.g. financial ratios, budgets, variance analysis) – non-financial quantitative (e.g. customer satisfaction, wastage, personnel rotation) – qualitative (e.g. plans, procedures, rules, access to computers or buildings, project management, corporate culture)
  9. 9. risk sharing – insurance• protection against hazards by taking out an insurance policy against an uncertain event• involves payment of a premium to an insurer which will compensate the loss in case of event occurance
  10. 10. risk sharing – diversification• using idea of ”dont put all your eggs in one basket”• wider range of activities/investments lowers the risk
  11. 11. risk sharing – hedging• in relation to ‘underlying’ factor (e.g. interest rate, currency exchange, commodity, share or bond price)• protection from unfavorable movement of an ‘underlying’ while still benefit from favorable movement• implemented by instruments with opposite-value movements to the ‘underlying’ (i.e. negative correlation)
  12. 12. risk sharing – outsourcing• transfer activities or processes to third party
  13. 13. risk acceptance• precise definition what could be accepted• no action taken in relation to the risk• should be covered by day-to-day business activities and its budget
  14. 14. risk treatment less common methods• quality management• lobbying• strategic alliances• mergers and acquisitions
  15. 15. RM process Risk treatmentRyanair case – create risk treatment ideas
  16. 16. risk listcompany related1. fuel costs and availability2. rapid growth of the company3. website or check-in systems breakdownindustry related1. some of government air travel taxes2. threat of terrorism3. currency exchange fluctuations
  17. 17. risk monitoring• continuous process based on risk policy• could be performed by more than one organization unit/function• many methods, commonly used: checklists, risk register, information scanning, media monitoring• most important items form risk register are subject of risk reporting
  18. 18. risk register – examples of criteria• risk number (an unique identifier)• risk category• description of risk• date risk identified• name of person who identified risk• likelihood• consequences• a monetary value, if such can be allocated to the risk• interdependencies with other risks
  19. 19. risk reporting• based on current data and monitoring process• should cover identified and analyzed risks along with risk response• in line with financial reporting• information to management and the Board• meet regulatory reporting requirements (e.g. SOX or Basel II)• part of investor relations reporting (in annual report)