Risk management

(noun)

Offsetting potential financial exposures through strategic investments.

Related Terms

Examples of Risk management in the following topics:

  • Information and Risk Trade-Off

    • IT risk management can be viewed as a component of a wider enterprise risk management (ERM) system.
    • Some organizations have a comprehensive enterprise risk management methodology in place.
    • IT risk transverses all four of the aforementioned categories and should be managed within the framework of enterprise risk management.
    • Risk appetite and risk sensitivity of the whole enterprise should guide the IT risk management process.
    • ERM should provide the context and business objectives on the management of IT risk.

  • Commercial Banks

    • Risk management (i.e. foreign exchange risks, interest rates, hedging commodities, derivatives)
    • Credit Risk – Risk that a borrower may not return the entirety of the payment owed.
    • Liquidity Risk – Risk that an acquired asset cannot be traded quickly enough to capture profit.
    • Market Risk – Virtually any capital asset has a market, and is therefore subjected to the risks of it's respective market.
    • Operational Risk – Risk that an operational issue will diminish returns.

  • Summary, discussion questions, and references

    • Managing IS risk is a daily decision making process aimed at reducing the amount of losses and threats to a company.
    • A risk assessment should be performed first.
    • It is important for managers to evaluate the risks and come up with cost-effective measures to be sure the organization is adequately protected from loss or damage to valuable information.
    • Why is important for start-up entrepreneurs to pay attention to IS risk management?
    • How do managers decide how much attention and resources they should devote to IS risk management?

  • Security risks and internet risks

    • The biggest challenge companies face in tackling IS security risks is the growing sophistication of hackers and other cyber-criminals.
    • We discuss Internet risks in the next section.
    • The risks and particular regulations that apply may vary depending on the types of services offered.
    • It is clear that no single risk management strategy can completely eliminate the risks associated with Internet use and access.
    • Some businesses whose products or services directly or indirectly impact the economy or the health, welfare or safety of the public have begun to use cyber risk insurance programs as a means of transferring risk and providing for business continuity.

  • The Role of Financial Managers

    • Financial managers perform data analysis and advise senior managers on profit-maximizing ideas.
    • Financial managers typically:
    • Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate in consideration of risk.
    • Risk managers control financial risk by using hedging and other strategies to limit or offset the probability of a financial loss or a company's exposure to financial uncertainty.
    • Insurance managers decide how best to limit a company's losses by obtaining insurance against risks such as the need to make disability payments for an employee who gets hurt on the job or costs imposed by a lawsuit against the company.

  • The Need for Management

    • The purpose of management is to serve customers.
    • Yet, if one looks through most management books for a definition of management, 99.9 percent of the time the word customer will not be mentioned.
    • Equally remiss is the fact that most definitions of management neatly filter out service in their descriptions of management.
    • In the same vein, good managers regularly take educated risks and exercise good judgement (the basis of entrepreneurship).
    • These risks include:

  • The Imperative of Liquidity

    • Organizations must carefully manage their cash flow statements to ensure appropriate liquidity to avoid missing investment opportunities.
    • When considering cash flow, it is important to understand liquidity risk.
    • All investments of capital can be framed with three key attributes: average expected return, degree of risk, and overall liquidity.
    • Business managers and accountants, when considering their investment options, should keep liquidity in mind at all times.
    • This chart shows some estimations of various types of capital investments, alongside their respective risk, return, and liquidity.

  • Analytical Mindset

    • Deriving, interpreting, and communicating patterns within data allows managers to make informed strategic and tactical decisions.
    • It is a critical role of management to ask the right questions and align employee behavior with analytical thinking.
    • Descriptive analytics – Collecting historical data from reporting, scorecards, clustering and various other sources of information, managers can underline trends and identify opportunities and/or risks.
    • Managers must be owners not only of the decisions they make, but the validity of the process in which they make them.
    • Analytics is the core skill set required for success in this domain, arguably the most important facet of management.

  • Investor of involvement

    • In September of 2007, a prominent group of state officials, state pension fund managers, and environmental organizations filed a petition with the Securities and Exchange Commission asking it to adopt guidelines requiring all public companies to disclose the risks of climate change to their business as well as the actions they're taking to mitigate those risks.
    • The 115-page petition, signed by state treasurers, attorney generals and state fund managers in California, Florida, Maine, New York, North Carolina, Oregon and Vermont, states that ‘climate change has now become a significant factor bearing on a company's financial condition… Investors are [therefore] looking for companies that are best positioned to avoid the financial risks associated with climate change and to capitalize on the new opportunities that greenhouse gas regulation will provide. ' The petition went on to claim that ‘Interest in climate risk is not limited to investors with a specific moral or policy interest in climate change; climate change now covers an enormous range of investors whose interest is purely financial…
    • How seriously companies are taking climate change into account when making strategic business decisions (particularly the physical risks that climate change imposes on a company's operations and financial condition),
    • The names of companies that are ‘out front' in their response to climate risks and opportunities,

  • Stress

    • There are various ways to define the difficulties small business owners confront, but the term stress manages to cover a fair bit of the disadvantages small business owners face.
    • Risk - Measured statistically and often planned for, risks are simply the probabilities of unfavorable outcomes compared to the desired objectives.
    • Ambiguity - A risk that is not measurable, ambiguity is the scenario in which objectives and relative risks are known, but not the likelihood of an outcome.
    • The objective is known, but the context of risk is completely unknown.
    • While these are a few key contributors to stress, it is also worth noting the likelihood of inconsistent revenue (and therefore salary), personal liability (the risk of losing whatever start up capital the business owner invested), payroll, taxes, managing stakeholders (if applicable) and a wide variety of other responsibilities and tasks which can contribute a stressed mentality.